How To Invest $100,000 For Big Dividends From 3 Big Macro Trends

Summary

• Dividend investing can be risky, with even dividend kings and aristocrats recently crashing and burning.
• Investing with major macro tailwinds at your back can help mitigate some of these risks.
• I share how I would invest $100,000 to profit form 3 big macro trends in the coming years while also generating an attractive income yield.
• Looking for a portfolio of ideas like this one? Members of High Yield Investor get exclusive access to our subscriber-only portfolios. Learn More »

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Dividend investing can be quite challenging in the rapidly changing world in which we find ourselves. Many times, dividend investors may focus on dividend kings and aristocrats (NOBL) with the thought that since their business models have been able to support dividend growth every year for 25 to 50 or more years without any interruptions, they are likely to continue doing so for years to come. While this principle generally holds, there are still some glaring exceptions, as evidenced by recent massive failures by various dividend kings and aristocrats such as Leggett & Platt (LEG), 3M (MMM), AT&T (T), Walgreens Boots Alliance (WBA), and even WP Carey (WPC). As a result, simply buying dividend aristocrats and dividend kings blindly is a risky proposition, as you never know when the next shoe will drop from that list. Instead, it may be best to look for businesses that combine attractive fundamentals, dividends, and valuations with major macro tailwinds that can drive them to continued prosperity for years to come.

In this article, we will discuss stocks that are poised to profit from three macro trends that we see being quite prominent in the coming decade, if not longer: artificial intelligence, soaring geopolitical risks and conflicts, and the onset of stagflation for at least the next few years.

#1. Artificial Intelligence Dividend Investments

For the portion of the portfolio that could profit from the artificial intelligence boom while still being income-focused, I think the best plays are Broadcom (AVGO) and the JPMorgan Nasdaq Equity Premium Income ETF (JEPQ). While Broadcom no longer has a high yield due to its strong stock performance in recent years, its 1.4% dividend yield is still on the high end relative to many other major AI stocks. Additionally, the company has a track record of growing its dividend consistently and appears poised to continue doing so for years to come, with analysts expecting it to grow at a near 13% CAGR through 2028, making it a solid dividend growth pick while also leaning into the AI tailwind.

Investors can complement that by holding JEPQ, which has 52% of its portfolio invested in technology stocks, including all of its top ten holdings positioned to profit from artificial intelligence in some way. These include Microsoft (MSFT) and Apple (AAPL), its top two positions, which are also dividend growth stocks. JEPQ implements a notional covered call strategy, enabling it to pay very lucrative monthly dividends equating to an 8.75% trailing 12-month yield. This means that an income investor can significantly boost their portfolio's income generation capabilities while also maintaining significant exposure to leading artificial intelligence plays, including Apple, Microsoft, NVIDIA (NVDA), Tesla (TSLA), Meta (META), and Amazon (AMZN). I also like JEPQ at the moment because I believe the AI space is richly valued, and the covered call strategy implemented by JEPQ takes some of that risk off the table as their strategy exchanges some future upside for cash premiums on the covered calls, which I find attractive given the current market conditions.

#2. Geopolitical Risk Dividend Investments

When it comes to rising geopolitical risks, investing in major defense primes like General Dynamics (GD) and Huntington Ingalls Industries (HII) are good bets because they are the leading shipbuilders for the United States Navy. Given that the leading geopolitical challenge is in the Pacific from China, the U.S., along with its AUKUS allies, will likely invest aggressively in expanding its naval capabilities. In fact the U.S. Navy is already investing aggressively towards this end and the Biden administration recently requested even more funds to do so. If Trump gets elected in the Fall, it is highly likely that he will increase this effort even further as he has made building up the U.S. military and countering China a cornerstone of his foreign policy agenda if he gets re-elected. This should profit GD and HII significantly. While their current dividend yields of about 2% each are not particularly high, their valuations are reasonable, with HII trading at a 14.9 P/E and GD at a 19.1 P/E. Additionally, both companies should be able to post strong earnings per share and dividend growth in the coming years. For example, HII is expected to grow its dividend per share at a 20% CAGR through 2028, and GD is expected to grow its dividend at about a 10% CAGR in the coming years.

Additionally, I think that Newmont Corporation (NEM) is a worthwhile investment because gold will likely shoot higher from rising geopolitical risks and the continued de-dollarization around the world. Central banks are buying gold hand over fist, and Newmont, with its high-grade mines, provides leveraged exposure to the price of gold. Additionally, its concentration in jurisdictions with lower geopolitical risk should help it hold up well, even if global conflicts intensify.

#3. Stagflation Dividend Investments

When it comes to profiting from stagflation, I think buying the Schwab U.S. Dividend Equity ETF (SCHD) is a good approach since most of the holdings in that ETF are fairly defensive in nature and grow their dividends at a strong clip, which should exceed inflation. However, I believe even better plays are infrastructure and real estate businesses that are not only very defensive and highly contracted in nature but also have inflation-linked revenue escalators. My four favorite picks for this type of investment are Brookfield Infrastructure Partners (BIP)(BIPC), Brookfield Renewable Partners (BEP)(BEPC), and Enterprise Products Partners (EPD) (Enbridge (ENB) isn't a bad substitute for those looking to avoid a K1) in the infrastructure and energy spaces. All three have strong balance sheets, well-diversified portfolios of assets that are highly contracted and/or regulated, and significant inflation protections. W.P. Carey (WPC) is also compelling in the real estate space due to its CPI-linked leases and triple-net lease structure, providing significant cash flow visibility and a very long 12.2-year term to maturity on its leases.

Investor Takeaway

Combining these stocks into a $100,000 portfolio, I would allocate 15% to JEPQ and 5% to AVGO, giving the portfolio 20% exposure to the AI trade while still generating sufficient current income and dividend growth. For the geopolitical risk trade, I would allocate 5% to GD, 5% to HII, and 10% to NEM, though it may make sense to allocate 5% to Gold (GLD) and 5% to NEM to further mitigate risks. Finally, for the stagflation trade, I would allocate 10% each to EPD, BIP, BEP, and WPC, and 15% to SCHD. The result would be an attractive overall dividend yield along with strong dividend growth, with high single-digit annualized dividend growth expected for SCHD, BIP, BEP, and GD; double-digit annualized dividend growth expected for AVGO and HII; and mid-single-digit dividend growth expected for WPC and EPD. Overall, this portfolio balances income generation and growth potential while leveraging key macro trends to provide resilience and upside potential in a challenging economic environment.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of GLD, NEM, EPD, BIP, BEP, HII, WPC either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.