I get a lot of questions regarding what a new investor should actually invest in, but I never put much thought into it. That’s because I feel each investor is different with their varying goals and risk tolerance.
Why waste my brain’s hard drive on something with so many variables? Well today, I’m going to try to do the unthinkable and create an evergreen list of stocks to seed their portfolio for everyone who’s just starting out in contrarian-income-value (CIV) investing.
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Stocks To Buy By Sector
The tricky part will be finding undervalued investment ideas across a few sectors. Plus, I will have to identify sectors that will be profitable and safe for the foreseeable future. Then I’ll have to identify investments in these sectors that have a reliable and hopefully growing dividend. That’s not as easy as it sounds.
Regardless, let’s start with the sectors: technology, utility, bonds, energy, REITs, BDCs and consumer staples. Every CIV portfolio must have investments from these sectors.
Start by investing money into one stock in the first sector and work your way down. Once you do that, your portfolio will look like the one outlined at the bottom.
Technology
I like to get my technology stocks squared away with either closed-ended funds (CEFs) or ETFs. It’s always better to have a basket of tech stocks as opposed to holding individual investments, because you never know which ones are going to take off.
Pick 1 of the following for your portfolio. If it were me, I’d go with JEPQ.
JEPQ
JEPQ has a 8.94% yield with a variable monthly dividend.
It’s up 10.13% YTD, up 33.02% for one year, and annualized returns of 16.33% since inception in May 2022.
This is literally a set-it and forget-it tech fund that pays you each month. We bought this in September 2022 and are up 33.54% with a 26% share increase because of DRIP.
NBXG
NBXG has a 10.32% yield with a $0.10 monthly dividend.
It’s up 8.35% YTD, up 20.67% for one year, but down -3.67% per year since inception in May 2021.
This fund still hasn’t recovered from the sell-off in 2022, but it is working its way back up. We bought this in October 2022 and are up 36.43% with a 15% share increase because of DRIP.
HRZN
HRZN has a11.30% yield with a $0.11 monthly dividend. It has a 7.73 P/E while its peers have an average P/E of 20.04.
Because this is a technology based BDC, it’s down -11.77% YTD and down -1.27% for one year. High interest rates have caused this investment to falter, but WHEN the FED lowers rates, I fully expect this to recoup all its losses.
We don’t own this in our portfolios, but I picked it up in Carmela’s mom’s portfolio in September 2022. Her holdings are breakeven with a 25% share increase because of DRIP. That means instead of the $55 a month ($660 a year) income, she now has $69 a month ($825 a year) in income. AHH the power of DRIP.
Utility
When it comes to utilities I find it best to own the individual stock. If you disagree with my approach, I have listed one fund that has exposure to many utilities.
Own 1 of the following in your portfolio. I suggest UTF for starters. After time you can add the other three.
VZ
VZ has a 6.7% yield with a $0.67 quarterly dividend. This company has 19 consecutive years of dividend growth. It has a 8.65 P/E while its peers have an average P/E of 18.65.
It’s up 4.72% YTD and up 5.80% for one year. We bought VZ in October 2023 and are up 26%. With only one dividend collected, we have a 1.6% share increase.
BKH
BKH has a 4.78% yield with a $0.65 quarterly dividend. The company has a whopping 54 consecutive years of dividend growth. It has a 13.91 P/E while its peers have an average P/E of 16.30.
It’s up 1.06% YTD but down 16.66% for one year. Again high interest rates have caused BKH to trend down. But it does give an investor a great buy-in price for a dividend king (50+ consecutive years of dividend raises).
We bought BKH in January 2024 and are up 1.75%. Since this is a new to the portfolio, we’ve only collected one dividend for a 1.7% share increase.
NEP
NEP has a 12.23% yield with a $0.88 quarterly dividend. The company has 10 consecutive years of dividend growth. It has a 15.5 P/E while its peers have an average P/E of 17.94.
It’s down 2.6% YTD and down a staggering 53.6% for one year. There was a huge sell-off when NEP issued dividend growth projections in the 6-10% per year growth range instead of the 12-15% growth range that they stated earlier in 2023. Basically, there was a shit ton of panic selling for no fundamental reason.
We bought NEP in October 2023 after the panic selling. Our nice buy-in price puts us up 32%. With 2 dividends collected we have a share increase of 6.7%.
UTF
UTF has a 8.25% yield with a $0.16 monthly dividend.
It’s up 8.7% YTD, up 5.18% for one year, up 7.08 for the five-year and has annualized returns of 9.37% since inception in March 2004.
We don’t own this because I like to hold individual stocks, but this is a perfect set-it-and-forget-it fund for utility exposure in your portfolio.
Bonds
This one is pretty simple. Just find a quality fund and hold for the long haul. Pick 1 of the following for your portfolio. I suggest PDI.
PDI
PDI has a 14.05% yield with a $0.22 monthly dividend. Up 4.03% YTD.
It’s up 24.54% for one year with annualized returns of 11.01% since inception in May 2012.
We bought this in November 2023 when I was beating the table in our podcast for everyone to get into bond funds instead of bonds. Since then, we’re up 13% and have a share increase of 5.8%.
YYY
YYY has a 11.99% yield with a $0.12 monthly dividend.
It’s up 1.2% YTD, up 17.21% for one year and has annualized returns of 7.83% since inception in June 2012.
We bought this in July 2023 and are up 11% with a share increase of 8.7%.
DSU
DSU has a 10.53% yield with a $0.10 monthly dividend.
YTD this stock is trading sideways (0%) but is up 29.68% for one year with annualized returns of 6.45% since inception in March 1998.
We bought this in July 2023 and are up 18% with a share increase of 7.4%.
Energy
There are so many ways to expose your portfolio to energy, but I’ll narrow it down to 3 options. Pick 1 to have in your portfolio. I suggest XOM.
ARLP
ARLP has a 13.22% yield with a $0.70 quarterly dividend.
YTD this stock is trading sideways (0.1%) but is up 225% for three years. ARLP currently has a 4.4 P/E while its peers have an average P/E of 4.5. So ARLP is fair value but kicking off a 13% yield. NICE.
We bought this in July 2023 and are up 21% with a 10.4% share increase.
XOM
XOM has a 3.14% yield with a $0.95 quarterly dividend. This company has 41 consecutive years of dividend increases.
It’s up 20% YTD and up 116% for three years. XOM has a 12.98 P/E while its peers have an average P/E of 11.02. So XOM is a tad overpriced, but for 41 years of dividend growth (2% growth per year) I was willing to pay a little extra.
We bought XOM in December 2023 and are up 17%. With one dividend collected, our share increase is only 1.6%, but we are literally never selling this.
KRP
KRP has a 10.53% yield with a $0.43 quarterly dividend.
YTD KRP is up 6% and is up 57% over three years. It has a 18.1 P/E while its peers have an average P/E of 11.02. That means it’s overpriced, so wait for a pullback on this one.
Now KRP is a micro cap company, but in my eyes it is the absolute best small cap oil play. We bought KRP September 2023 and are up 7% with a share increase of 6.7%.
REITs
This one is pretty simple as well. Pick 1 of the two below, and set-it-and-forget-it. I suggest ABR.
IIPR
IIPR has a 7.38% yield with a $1.82 quarterly dividend.
YTD IIPR is down 4% but up 41% for one year and up 13% for five years. IIPR has a 16.65 P/E while its peers have an average P/E of 30.90. So it’s vastly undervalued compared to similar companies.
IIPR only has a 6 year dividend growth streak, but its annualized growth rate is 17%, meaning it hikes its dividend a lot when it does a dividend increase. We bought IIPR in December 2023 and are only up 3% with a 4% share increase.
ABR
ABR has a 13.21% yield with a $0.43 quarterly dividend. This company has a 7.83 P/E while its peers have an average P/E of 15.09.
YTD ABR is down 16%, but up 22% for one year. Yep, ABR has been volatile recently. However, it’s grown its dividend 13 consecutive years with an annualized growth rate of 6% — which is insane! Plus they sometimes sprinkle in special dividends.
We’ve held ABR a few times through the years. The last time we bought it was in May 2023. We’re up 21% with a share increase of 8.5%.
BDCs
Simply put, own at least 1 and if possible, have them all in your portfolio. I suggest MAIN to start with.
HTGC
HTGC has a 8.44% yield with a $0.48 quarterly dividend. This company only has a 5 year dividend growth streak going, BUT it’s raised the dividend 12 times in the past 5 years. AND it has an annualized growth rate of 6%.
YTD HTGC is up 13% and is up 45% for one year. They have an 8.33 P/E while its peers have an average P/E of 20.13.
We’ve held HTGC since July 2022, we’re are up 48% and have a share increase of 21%.
MAIN
MAIN has a 5.9% yield with a $0.24 monthly dividend. This company has raised its dividend for 15 consecutive years (with special dividends usually twice a year as well) and has a 5% annualized dividend growth average.
YTD MAIN is up 12% and is also up for one year, three year and five year. AKA this is a must-have company for every income portfolio. MAIN has a 9.37 P/E while its peers have an average P/E of 20.13.
We’ve held MAIN multiple times. The last time we bought it was in November 2023. We’re up 15% with a share increase of 2.4%.
ARCC
ARCC has a 9.24% yield with a $0.48 quarterly dividend. ARCC has not cut its dividend in 15 years and has raised it 8 times in that time frame. It also has an annualized dividend growth rate of 5%.
YTD ARCC is up 3% and is also up for one year, three year and five year. If it weren’t for MAIN, ARCC would be the must-have company. This company has a 7.79 P/E while its peers have an average P/E of 20.13.
We’ve held ARCC since August 2023 and are up 12% with a share increase of 5%.
Consumer Staples
Own 1 or 2 of the following. I suggest MO to start, but after you have more money to invest, pick up MMM.
MMM
MMM has a 6.61% yield with a $1.51 quarterly dividend.
YTD MMM is trading sideways at 0.5% and one year is up 6%. Litigation has caused some volatility as investors are wary about revenue and cash flow because of fines being paid out. BUT the fines are due over a course of 10 years, so I’m not worried about MMM.
Where the fines are an issue is dividend growth. MMM has only grown their dividend 0.5% annually the past 3 years. But, 64 is the number of years MMM has increased its dividend. The company has a 12.26 P/E while its peers have an average P/E of 16.37.
We’ve held MMM since October 2023 and are up only 4% but that does include a spinoff where the price was affected pretty drastically. MMM fell almost 10% after their spinoff. We have a share increase of 3.7% in MMM.
MO
MO has a 9.0% yield with a $0.98 quarterly dividend. They’ve raised their dividend 54 consecutive years and their 4.5% annualized dividend growth is enticing.
YTD MO is up 7.5% but is down one year, three year and five year. Entry price is everything when it comes to MO. A good rule of thumb that’s worked for me is to pick up some shares anytime it falls below $40. MO has a 8.53 P/E while its peers have an average P/E of 14.12.
We’ve held MO a few times over the years and our most recent purchase was January 2024. We’re up 8% and with only 1 dividend collected so far, we have a 2.4% share increase.
BTI
BTI has a 10.11% yield with a $0.74 quarterly dividend. BTI has a variable dividend, which means it’s all over the place. SO unlike MO, BTI lacks consistency. BUT it is reliable in that it has 3% annualized dividend growth over the past five years.
MOs cheaper sibling, BTI is trading sideways YTD, but like MO is down one year, three year and five year. The difference between MO and BTI is pretty vast. MO is down -7% one year, -8% three year and -19% five year. BTI is down -20% one year, -23% three year and -23% five year. SO again entry point is crucial when investing in BTI. It looks like anytime BTI falls under $29, it then goes up.
BTI has a 6.44 P/E so it is cheaper valuation wise than MO and BTI is vastly cheaper than its peers who sport an average P/E of 14.12. We’ve held BTI since November 2023 and are up only 2% with a 2% share increase.
In Summary
Your starter portfolio would look like this if you followed my suggested stock recommendations.
- JEPQ
- UTF
- PDI
- XOM
- ABR
- MAIN (but HTGC or ARCC works too)
- MO or MMM
I’d begin with these and get a good amount, say $2,000-$5,000, into each and then branch out by picking up any of the others you may like. If you only have $1,000, start there.
Your portfolio will yield about 10% if you equally disburse (14.3% of) your money across each stock in all 7 sectors. You’ll have some of the highest yielding and best valued investments, but also the safest too. Not to mention a history of dividend growth, which is what income investing is all about.
Good value ✔ Good yield ✔ Risk mitigation ✔
You may find better investments in the sectors I’ve listed, which is awesome. But what I’ve found through the years is that these are the best sectors for an income investing portfolio.
