Day: September 21, 2024

Building a portfolio of great stocks that can pay out enough in dividends to cover most of your major expenses in retirement is a big goal for many investors. Experts and amateurs alike spend a lot of time and effort searching for great dividend stocks that not only pay a reasonably high yield today, but will also grow their payouts over time. Finding those stocks means you’ll likely receive an annual pay raise every year as long as you remain diversified. You might not ever have to sell a single stock to fund your retirement if you can find the right portfolio of dividend payers.

The great news for investors is that building a portfolio of dividend stocks that can pay out tens of thousands of dollars each year doesn’t have to be complicated. Consistently investing in an exchange-traded fund (ETF) every month and reinvesting the dividends during your career can result in a massive portfolio paying a substantial sum in annual income over time.

One simple Vanguard ETF, the Vanguard High Dividend Yield ETF (NYSEMKT: VYM), has the potential to turn a consistent investment of $500 per month into a $50,000 annual dividend machine.

The only ETF you need to build a diversified dividend portfolio

The Vanguard High Dividend Yield ETF tracks the performance of the FTSE High Dividend Yield index, which includes stocks forecast to pay above-average dividend yields. Some might find the stock selection for the index to be too simple, but higher-paying dividend stocks historically provide above-average total returns as a group over the long run, according to research conducted by Hartford Funds.

In other words, it historically pays off in the long run to simply buy every stock in the market with an above-average dividend yield. The top holdings in the Vanguard High Dividend Yield ETF (and their yields) are:

1. Broadcom (1.3% dividend yield)

2. JPMorgan Chase (2.2%)

3. ExxonMobil (3.3%)

4. Procter & Gamble (2.3%)

5. Johnson & Johnson (3%)

6. Home Depot (2.4%)

7. AbbVie (3.2%)

8. Walmart (1.1%)

9. Merck (2.6%)

10. Coca-Cola (2.7%)

As you can see, the biggest holdings in the ETF aren’t super-high-yield stocks you might associate with some funds. But they do, for the most part, offer yields well above the S&P 500‘s average of 1.3%. The fund’s 2.8% yield is still over twice the S&P 500’s.

Importantly, the fund contains 551 stocks, with just 24.8% of the fund held in the top 10 stocks, making it more diversified than the S&P 500 as well. That can provide extra downside protection if one company or industry suffers. That way, no single investment will bring down the value of the fund or the dividend it pays.

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What’s more, you get the benefit of a super-low expense ratio. Vanguard charges just 0.06% of assets to invest in its index fund.

How $500 per month could generate $50,000 in annual dividends

The Vanguard High Dividend Yield ETF has produced an average compound total return of 8.7% since its inception in late 2006. While the returns of dividend stocks and the large-cap value stocks that the fund tilts toward will fluctuate over time, the historical return can help us estimate the growth of a consistent investment in the future.

Keep in mind that the total return includes reinvesting dividends. It’s a smart idea to automatically reinvest while accumulating assets, but eventually, you’ll want to start living off those dividends.

If the only thing you ever did was buy $500 worth of the Vanguard ETF at the start of every month and reinvest your dividends, you would be able to build a sizable portfolio over time. Here’s what your account balance might look like based on the historical returns and current yield.

Calculations by author. Figures are based on $500 invested monthly in the Vanguard High Dividend Yield ETF, with interest is calculated on a compounded basis.

As illustrated above, consistently investing $500 per month for 40 years results in a portfolio that pays out $54,531 per year based on the current dividend yield. That’s the amount you could collect from the portfolio without ever touching the principal investment. As such, you should expect the income stream to keep growing as the companies in the fund raise their dividends over time.

At the same time, you should see the total value of your portfolio continue to climb over time, even when you stop adding to your portfolio or reinvesting dividends. That could result in a substantial inheritance for your heirs.

There are a few important considerations for investors. First, future returns aren’t guaranteed to look like past returns. While the Vanguard fund has a long track record of good returns and dividend stocks historically perform well, there’s a chance they don’t continue to perform as they have in the past.

Moreover, investors shouldn’t expect steadily consistent returns month in and month out. The above table assumes a constant rate of return, but investors should expect volatility. The longer you invest, the more likely your returns will end with similar results to the table above, but the path to get there could be filled with ups and downs.

Second, the dividend yield for the Vanguard fund (and the stock market as a whole) could decline over the next 40 years. Yields aren’t nearly as high as they were 40 years ago, and they could fall further. On the other hand, they could increase in the future. You might find your dividend income doesn’t match the expectations as a result.

Lastly, it’s important to remember that $50,000 won’t be able to buy as much in 40 years as it does today. So be sure your long-term plan accounts for inflation if you’re aiming to replace your income with a steady stream of dividend payments.

If you keep those things in mind, the Vanguard High Dividend Yield ETF is one of the best options for building a strong portfolio of dividend stocks without the effort of evaluating individual stocks and businesses.

Should you invest $1,000 in Vanguard Whitehall Funds – Vanguard High Dividend Yield ETF right now?

Before you buy stock in Vanguard Whitehall Funds – Vanguard High Dividend Yield ETF, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Vanguard Whitehall Funds – Vanguard High Dividend Yield ETF wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $722,320!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of September 16, 2024

JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Adam Levy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Home Depot, JPMorgan Chase, Merck, Vanguard Whitehall Funds-Vanguard High Dividend Yield ETF, and Walmart. The Motley Fool recommends Broadcom and Johnson & Johnson. The Motley Fool has a disclosure policy.

1 Simple Vanguard ETF Can Turn $500 Per Month Into $50,000 in Annual Dividend Income was originally published by The Motley Fool

By most metrics, the stock market is priced at a premium these days. But that doesn’t mean bargains can’t still be found.

Three Motley Fool contributors think they’ve identified dirt-cheap healthcare stocks to buy right now. Here’s why they picked CRISPR Therapeutics (NASDAQ: CRSP), Gilead Sciences (NASDAQ: GILD), and Pfizer (NYSE: PFE).

You can still get in on the ground floor

Prosper Junior Bakiny (CRISPR Therapeutics): Valuing relatively small biotech companies that generate little-to-no revenue is not an exact science. Even so, CRISPR Therapeutics, a gene-editing specialist, looks cheap at its current levels. CRISPR Therapeutics’ market cap is $4.2 billion despite the recent approval of Casgevy, a treatment for two blood-related diseases it developed in collaboration with Vertex Pharmaceuticals.

CRISPR Therapeutics and Vertex Pharmaceuticals are looking at a massive opportunity with Casgevy. The medicine costs $2.2 million in the U.S. They estimate a market of 35,000 patients in the U.S. and Europe, with an additional 23,000 in some countries in the Middle East where Casgevy is also approved. CRISPR Therapeutics should eventually generate well over $1 billion in sales from Casgevy.

The company has also shown that its gene-editing platform can produce tangible results in unlocking treatments where few are available. There is a world of opportunities: Plenty of conditions have no approved treatments. Many others have a dire need for better standards of care. One of CRISPR Therapeutics’ more promising projects is its work in type 1 diabetes for which the company is attempting to develop a functional cure.

In my view, CRISPR Therapeutics is a biotech giant in the making. Casgevy will bring in the funds that will help it push its gene-editing platform forward. In the next five years, expect more important clinical and regulatory progress from the company. Though CRISPR Therapeutics has delivered strong returns since its 2016 initial public offering (IPO), there remains substantial upside for the biotech, at least for investors willing to be patient.

Gilead Sciences could make for an underrated growth stock

David Jagielski (Gilead Sciences): What’s a top pharmaceutical stock you won’t want to overlook right now? Gilead Sciences. While its single-digit (and sometimes negative) growth rate may look unimpressive over the past few years, the company does possess some promising catalysts which can lead to stronger numbers in the future. Plus, it pays a great dividend which yields 3.7% — nearly three times better than the S&P 500 average of 1.3%.

Gilead Sciences recently announced that lenacapavir, its twice-yearly HIV treatment, was highly effective in preventing HIV. It dramatically reduced infections by 96% in a phase 3 trial. Analysts estimate that the drug, which is already approved to treat people who have multidrug-resistant HIV, could generate $4 billion in sales at its peak. That could be a considerable revenue-generating product for the business as last year Gilead’s sales topped $27 billion.

Lenacapavir could do wonders for the company’s HIV business, which has been Gilead’s slowest growing of late. Through the first six months of 2024, HIV sales rose by just 3% year over year to $9.1 billion. While that’s still the company’s largest segment, growth rates in liver disease (13%) and oncology (17%) were both far higher during that time frame and also represent exciting growth opportunities for the business in the future.

Although Gilead’s shares are up a little this year, the biotech stock trades at a lowly 12 times its estimated future profits (based on analyst expectations). For long-term investors, this could be an excellent stock to buy and hold.

More than meets the eye

Keith Speights (Pfizer): Pfizer has been a big loser in recent years, although it has eked out a meager gain in 2024. However, I believe there’s more than meets the eye with this big drugmaker.

You can blame much of Pfizer’s woes on the declining sales of its COVID-19 products. I don’t anticipate the company will ever again see the booming numbers of 2021 and 2022. But I also think 2024 could be a trough year for Pfizer’s COVID-19 vaccine sales.

The other big challenge for the company is the impending patent expirations for several of its top products. Unfortunately for Pfizer, the list includes blockbuster drugs Eliquis, Ibrance, Vyndaqel, Xeljanz, and Xtandi.

Pfizer isn’t being blindsided by this patent cliff, though. It has invested in developing new products, with respiratory syncytial virus (RSV) vaccine Abrysvo especially standing out. The company has also used the tremendous cash generated from its COVID-19 vaccine during the worst of the pandemic to fund key acquisitions, including its 2023 purchase of Seagen. As a result, Pfizer should be able to deliver solid growth in the coming years despite losing patent exclusivity for multiple products.

Meanwhile, the pharma stock is priced at a discount. Pfizer’s shares trade at only 10.6 times forward earnings. That’s much lower than the S&P 500 healthcare sector’s forward-earnings multiple of 19.6.

If you’re looking for another reason to buy this dirt-cheap stock, check out its dividend. Pfizer offers a forward-dividend yield of 5.65%. Even better, the company’s management remains committed to growing its dividend payout over time.

Should you invest $1,000 in CRISPR Therapeutics right now?

Before you buy stock in CRISPR Therapeutics, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and CRISPR Therapeutics wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $722,320!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of September 16, 2024

David Jagielski has no position in any of the stocks mentioned. Keith Speights has positions in Pfizer and Vertex Pharmaceuticals. Prosper Junior Bakiny has positions in Vertex Pharmaceuticals. The Motley Fool has positions in and recommends CRISPR Therapeutics, Gilead Sciences, Pfizer, and Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.

3 Dirt Cheap Stocks to Buy Right Now was originally published by The Motley Fool

Super Micro Computer (NASDAQ: SMCI) investors have been on a roller-coaster ride in 2024. The stock entered the year at $280, then it quickly peaked at nearly $1,200 in March. Since then, it’s been a near-straight fall down, and the stock currently sits around $440.

There are some good reasons why Supermicro fell from its $1,000-plus stock price earlier this year, but I also think its current price is an absolute steal, which is why I just bought the dip on the stock.

Supermicro hasn’t had much positive news lately

Super Micro Computer builds components for computing servers as well as full server solutions themselves. Its claim to fame in this world is that it offers highly customizable servers that can be tailored for any workload size or type. Additionally, its liquid-cooled technology alongside other innovations make its servers the most efficient in the world. This is critical, as the energy input costs into these servers are incredibly high.

With massive demand for data center parts and servers, Supermicro’s business has boomed, following a similar growth trajectory as Nvidia. This caused the stock to rise earlier this year, but the company has hit two major stumbling blocks along the way.

First, Supermicro’s gross margin plummeted in 2024, continuing a trend that started in 2023.

This is a problem, as a plummeting gross margin can signal pricing competition, indicating that Supermicro has no real competitive advantages. However, management points to the upfront costs of getting its liquid cooling technology up and running. It expects its gross margin to improve as components become more readily available throughout fiscal year 2025 (ending June 2025).

This should also improve bottom-line profitability and is a key trend to watch over the next year.

The second cause for Supermciro’s decline was Hindenburg Research’s short report. Hindenburg is a famed short-seller, which means it profits as the stock declines. It is known to release reports on various companies, explaining why it believes the stock is mispriced. In Supermicro’s case, it alleges accounting malpractice as one of the chief concerns. Supermicro didn’t do itself any favors in beating these allegations by delaying its end-of-year form 10K filing to the Securities and Exchange Commission (SEC) either.

The Hindenburg report doesn’t concern me as much as the falling margins do, as if there are any issues, it likely only accounts for a very small fraction of Supermicro’s business.

As for the margins, the market is valuing the stock like it will never return to normal, which is a huge investment opportunity.

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The bar is fairly low for Supermicro’s stock to succeed

Fiscal year 2025 is expected to be another monster year of growth for Supermicro, with revenue expected to rise between 74% and 101% year over year. Furthermore, Supermicro’s CEO raised his long-term outlook to $50 billion in annual revenue for the company. There’s a massive opportunity here, and Supermicro will be one of the primary beneficiaries.

According to Wall Street estimates, Supermicro is projected to grow its earnings by 69% in fiscal 2025.

However, if Supermicro meets its revenue growth targets, its revenue growth will exceed earnings growth projections. This doesn’t make much sense, especially if margins improve throughout the year, as management forecasts.

This is a key reason why I’m investing in Supermicro: The stock’s base case is easily achievable. If Supermicro knocks it out of the park, grows revenue at the high end of expectations, and improves margins, the stock will likely be a home run.

With the general trends toward cloud computing and artificial intelligence (AI), Supermicro’s business isn’t slowing down anytime soon. As a result, I’m using the weakness to start a position, as it could be a huge winner in the next few years.

Should you invest $1,000 in Super Micro Computer right now?

Before you buy stock in Super Micro Computer, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Super Micro Computer wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $722,320!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of September 16, 2024

Keithen Drury has positions in Super Micro Computer. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.

I Just Bought the Dip on Super Micro Computer Stock was originally published by The Motley Fool

Over the last two years, the hype around the artificial intelligence (AI) boom has led to incredible operating momentum for Nvidia (NASDAQ: NVDA), the company that designs and manufactures most of the industry’s chips. But while business is roaring, the company’s stock price seems to have hit a roadblock. Let’s discuss why this might be happening and determine whether Nvidia’s shares can hit $200 before the end of the year.

Nvidia’s rocket-ship rally fades

With shares up by around 2,450% over the last five years, Nvidia has been a rewarding investment for its long-to-medium-term shareholders. However, the thesis is beginning to unravel, as strong operational results are no longer impressing the market as much as before.

Second-quarter revenue soared 122% year over year to $30 billion, driven by massive demand for Nvidia’s data center graphics processing units (GPUs), which help run and train AI algorithms. The company’s bottom line also remains buoyant, with operating income jumping 174% year over year to $18.6 million. Management expects the release of new AI hardware products based on the faster and more efficient Blackwell architecture to stimulate client demand in 2025 and beyond.

Nvidia’s board also approved a whopping $50 billion worth of share repurchases in the quarter, which can boost investors’ claim on future earnings by lowering the number of shares outstanding.

However, while these are objectively good results, Nvidia’s split-adjusted stock price has fallen around 10% since the release on Aug. 28, suggesting many market participants think the operational momentum is unsustainable.

Storm clouds gather over the AI industry

There are several reasons why investors might take Nvidia’s current results with a grain of salt. For starters, the consumer-facing software side of the generative AI industry is yet to prove its monetization potential. For instance, analysts at Goldman Sachs worry that today’s AI systems simply aren’t designed to solve problems complex enough to justify their costs.

And while the technology behind large language models (LLMs) like ChatGPT continues to improve, that doesn’t necessarily mean they will become easier to monetize because of competition from free, open-source rivals like Meta Platforms’ Llama or Elon Musk’s Grok.

There is a growing risk that AI could follow the pattern of previous hype cycles like the internet or electric vehicles, where corporations overbuilt capacity in anticipation of consumer demand that didn’t materialize quickly. If this happens with generative AI, the market for Nvidia’s pricey data center hardware could plateau or decline in the near term — even if the technology becomes widely adopted over the coming decades.

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Nvidia’s uncertain path to $200 per share

After a 10-for-1 stock split in June, Nvidia’s modest $115 stock price belies its true size. With a market cap of $2.84 trillion, the GPU chipmaker is already the third-largest company in the world — behind Microsoft and Apple, which are worth $3.23 trillion and $3.3 trillion, respectively.

A 73% rally to $200 should take Nvidia’s market cap to roughly $4.9 billion, most likely putting it in the No. 1 spot. And with a forward price-to-earnings (P/E) multiple of just 41, the stock certainly looks like it has more room to run, considering its triple-digit earnings growth.

That said, unlike the typical megacap company, which usually built its business over decades by servicing established, profitable sectors in the economy, Nvidia’s business remains speculative and uncertain — earning it a discounted valuation. The company looks unlikely to hit a share price of $200 in 2024 or any time soon until the software side of the AI industry starts to carry its own weight. And that is far from guaranteed.

Should you invest $1,000 in Nvidia right now?

Before you buy stock in Nvidia, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Nvidia wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $710,860!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of September 16, 2024

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Goldman Sachs Group, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

Can Nvidia Stock Hit $200 in 2024? was originally published by The Motley Fool