With the Reserve Bank of Australia looking increasingly likely to cut interest rates again at least once this year, it's an important time for income investors to consider their portfolios and how to get the best bang for your buck in this low-rate environment. Here is how I would build a diversified income portfolio with $100,000 of capital today.
Macquarie Group Ltd (ASX: MQG) – $20,000
I like to have dividend stocks with solid income and a bit of capital growth on the side. Macquarie fits this bill very nicely – it is an extremely well-run company with a diverse and global set of earnings streams that will continue to perform well into the future. Macquarie is currently yielding 4.54% and is partially franked.
Coles Group Ltd (ASX: COL) – $20,000
I was impressed by Coles' recent announcement of a cost-cutting program incorporating automation of its supply chains over the next few years. Although Coles is probably not going to shoot the lights out with growth, the company has a solid and reliable earnings base with its focus on price in the grocery sector. This will provide (I expect) a dividend of between 4.5%-5% going forward (fully franked) which will provide our portfolio with a strong and stable income backbone.
AGL Energy Limited (ASX: AGL) – $20,000
Shares of this energy giant currently offer a massive 5.7% yield (franked at 80%), which is too good to pass up (in my opinion). AGL's earnings are highly defensive to boot (we all need electricity) and AGL is committed to paying out at least 75% of earnings going forward.
WAM Research Ltd (ASX: WAX) – $20,000
This Listed Investment Company (LIC) has a strong history of growth as well as income and is sitting on a fully franked dividend yield of over 7%. WAX works mainly in the small to mid-cap space, which provides a bit of ASX diversification away from the large-caps already in our portfolio.
National Australia Bank Ltd (ASX: NAB) – $10,000
You couldn't have a traditional dividend portfolio without one of the 'Big Four' and that's why I've chosen NAB for 10% of the portfolio. Whilst I don't think NAB's earnings future will be as bright as it has been over the past decade, it's still a great income stock with the fully franked 6.78% dividend yield on current prices. NAB also has less exposure to the housing market than some of the other big banks and this is a big plus as well.
Transurban Group (ASX: TCL) – $10,000
It wouldn't be a proper income portfolio without a bit of infrastructure and Transurban is the perfect candidate, in my opinion. The toll-road operator has a network of around 16 toll-roads (both in Australia and North America) that enable a highly reliable and rising stream of cash flow. Many of Transurban's contacts have 4% annual toll rises built-in (well above inflation) as well, which provides further income certainty. Transurban's shares are looking fairly expensive at the present time, but still offer a dividend of 3.84% on current prices.
Foolish Takeaway
If you are building a strong, diverse dividend portfolio (complete with franking credits), any of these shares would make a worthy addition (in my opinion). All offer solid, defensive yields and can be relied upon, rain, hail or shine, for reliable earnings streams. Shares are looking expensive at the current time, so averaging into your positions might allow for some cost management, but in this low-rate environment, sometimes 'you just gotta make do'.
