Both Stocks and ETFs Can Provide Growing Income

Most dividend growth investors have a set of criteria for buying a dividend-paying stock. When I investigate a new possibility, I want to see the dividend yield, dividend payout ratio, 5-year dividend growth rate and the number of years the dividend has been increasing. I also, of course, want to know that growing earnings will support the growing dividends and that the P/E ratio is rational for the sector being considered. Today I looked at two potential additions to our investments. One is CTRE and the other is CUZ. I will talk briefly about these two before I cover ETF’s VYM and DGRO. These two ETFs are different in enough ways that I want to hold both of them for different reasons.

VYM and DGRO Dividend Chart Comparison – which is “Better?”

CareTrust REIT, Inc. (CTRE)

As the name clearly states, CTRE is a REIT. “CareTrust REIT, Inc. is a self-administered, publicly-traded real estate investment trust engaged in the ownership, acquisition, development and leasing of skilled nursing, seniors housing and other healthcare-related properties. With a nationwide portfolio of long-term net-leased properties, and a growing portfolio of quality operators leasing them, CareTrust REIT is pursuing both external and organic growth opportunities across the United States.” (From Seeking Alpha)

Cousins Properties Incorporated (CUZ)

CUZ is also a REIT. But it has a focus on a different type of real estate. “The Company, based in Atlanta, GA and acting through its operating partnership, Cousins Properties LP, primarily invests in Class A office towers located in high-growth Sun Belt markets. Founded in 1958, Cousins creates shareholder value through its extensive expertise in the development, acquisition, leasing, and management of high-quality real estate assets. The Company has a comprehensive strategy in place based on a simple platform, trophy assets and opportunistic investments.” While some are fearful of the future for offices given the Covid-19 issues, I don’t see CUZ as a loser for the long-term investor.

Bearish, Bullish or Very Bullish Ratings

All of the ratings for CTRE on Seeking Alpha are bullish. The SA Authors are bullish, Wall Street is bullish, and the QUANT rating is very bullish.  For CUZ, there are no SA Authors covering CUZ, but both Wall Street and QUANT are “very bullish.”

A Dividend Comparison for CTRE and CUZ

In addition, the dividend-related fundamentals for both investments are “very good.” The following two images show what I mean. I have alerts set on both of these REITs as I may buy them before the end of 2020. But I don’t just take the analyst’s word on this. I also look at the free REITNOTES web site to see their REITRATING™ scores. CTRE has a score of 8.3 and CUZ has an even better one at 8.9. When the score is above 7.0 I am interested.

Why own both VYM and DGRO?

Most of my regular readers know that I also favor some dividend growth ETFs. The ones that I often recommend are VYM, SCHD, and DGRO. Recently a reader asked me if I liked VYM or DGRO better. We own shares of both. I explained why I prefer VYM, but also like DGRO for other reasons.

First of all, both have a similar number of holdings. VYM has 417 and DGRO holds 422. But the differences make each one of them unique. One way to notice differences is to look at the top ten holdings. Anyone who buys an ETF, or a mutual fund, should always look at the top ten holdings. That tells you a story. In the case of VYM and DGRO, they don’t have the same focus. They hold five identical investments in different proportions but then both have five different companies in the top ten as well. Of course, this doesn’t mean that both don’t hold some shares of all of the top ten, but they don’t appear as weighted heavily in both.

Top Ten Holdings for VYM and DGRO

Yields and Growth Rates

The yields on VYM and DGRO are significantly different. VYM yields 3.13% while DGRO currently yields 2.22%. Because I am “retired”, I like to have the cash flowing into our accounts at a higher rate. That makes VYM a better choice for income. However, DGRO has a 3 year dividend growth rate (CAGR) of 12.33% while VYM’s is “only” 8.81%. DGRO doesn’t have a ten-year history for dividend increases yet, but I would expect it to beat VYM in that category when it does. VYM has a 10-year history of dividend growth and DGRO has less history.

In a Nutshell

The bottom line is that I want the higher income from VYM, so I own more shares of VYM than any other ETF in our accounts. I want DGRO dividend growth for a little extra juice in the growth department. Both have growing dividends, but DGRO clearly outpaces VYM.

Full Disclosure

Cindie and I own 1,745 shares of VYM as a long-term investment. We own 400 shares of DGRO.