Small, Big, Bigger: a Sizable Dividend Portfolio

Ash is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Bigger isn’t always better, especially in investing. Small cap stocks have the advantage over their large cap counterparts because they are able to make decisions easier, gain in their market share against larger rivals, and, at least in some instances, fly under the radar of many institutions until they are large enough to be purchased. This article will combine one large-, one mid-, and one small-cap company to create a nice dividend portfolio.

The Large-Cap

There are lots of large cap dividend payers out there, but my favorite happens to be a stock that I own, ConocoPhillips (NYSE: COP). ConocoPhillips is an integrated U.S. based energy company with a $70 billion market cap.

So, why Conoco? Well, the analysts have it back on the good side with positive 5-year CAGR expected at an annual rate of 5.3%, a lot better than the negative performance they put out over the last five years. The company is also expected to grow their U.S. oil output by some 50% from now through 2015.

ConocoPhillips is also in the process of selling off some of their foreign assets in order to give them higher margins in the States.

ConocoPhillips has a yield of 4.6% with an incredibly low payout ratio of 33%. Dividends have been paid by the company for over 20 consecutive years and will likely see an increase sometime this year.

<table> <tbody> <tr> <td><strong>P/E</strong></td> <td>7.27 </td> </tr> <tr> <td><strong>Yield</strong></td> <td>4.6% </td> </tr> <tr> <td><strong>Payout Ratio</strong></td> <td>33%</td> </tr> <tr> <td><strong>Return on Equity</strong></td> <td>21.36% </td> </tr> <tr> <td><strong>Return on Assets</strong></td> <td>9.79% </td> </tr> </tbody> </table>

The Mid-Cap

In order to keep this diversified I had to stay away from Marathon Oil at the mid-cap level; it is however worth a look. For this dividend portfolio I would have to recommend Energizer Holdings (NYSE: ENR). You’ve no doubt used an Energizer powered product at some time throughout the decades that this company has been providing batteries to industry and consumers. You may even have used one of their many other brands, most of them not even battery related.

The dividend out of Energizer Holdings is a lot smaller than that of ConocoPhillips at just 2%, but the payout ratio is also on the smaller side at 6%. The dividend doesn’t have a very long history, the first payment being made in Q3 2012, but with such a low payout ratio this dividend should continue on into the future.

Energizer Holdings will continue to grow as a company with their diverse product line. Along with the namesake battery brand Energizer also sells shaving, lighting, skin care and infant care products under a variety of brands. This diverse product line and the optimism shown by the company’s EPS forecasts are why most analysts are bullish on the Energizer Holdings stock.

When compared to the industry, Energizer Holdings looks even more appealing. The company is lower on many different ratios and even carries a low forward P/E of 12.1.

<table> <tbody> <tr> <td><strong>P/E</strong></td> <td>13.1 </td> </tr> <tr> <td><strong>Yield</strong></td> <td>2%</td> </tr> <tr> <td><strong>Payout Ratio</strong></td> <td>6%</td> </tr> <tr> <td><strong>Return on Equity</strong></td> <td> <p>19.61% </p> </td> </tr> <tr> <td><strong>Return on Assets</strong></td> <td>6.42% </td> </tr> </tbody> </table>

The Small-Cap

We have an oil & gas play and a consumer products facing play. For the small cap, how about a 7.4% yielding real estate investment trust? That’s exactly what we’ll go with. Omega Healthcare Investors (NYSE: OHI) is a $2.6-billion REIT that focuses on building healthcare facilities around the United States.

The main focus of Omega Healthcare Investors is nursing homes. With the baby boomers getting older, retiring and some of them needing assistance in the nursing area I feel that OHI is perfectly positioned to capitalize on this while returning the required 90% of profits to investors.

One of the great things about ensuring some exposure in the healthcare sector is that we know it isn’t going away. People will always be sick and there will always be a need for the nursing homes that OHI provides to its customers.

<table> <tbody> <tr> <td><strong>P/E</strong></td> <td>24.52 </td> </tr> <tr> <td><strong>Yield</strong></td> <td>7.4% </td> </tr> <tr> <td><strong>Payout Ratio</strong></td> <td>167%</td> </tr> <tr> <td><strong>Return on Equity</strong></td> <td>11.06% </td> </tr> <tr> <td><strong>Return on Assets</strong></td> <td>5.03% </td> </tr> </tbody> </table>

How's The Portfolio Look?

Taking all three stocks into account and fictitiously investing $1,000 in each of them gives us a very nice looking dividend based portfolio. The investment would get us, at the time of writing, 16 shares of COP, 12 of ENR and 41 of OHI for a total investment of $2921.18. 

The portfolio detailed above would have a weighted dividend yield of 4.685%, a weighted beta of 0.994, global diversification in terms of sales and some fantastic growth potential. 


Ash1402 owns shares of ConocoPhillips. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Energizer Holdings. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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