In response to Facebook changing its name to Meta Platforms, my colleagues introduced a new acronym for big tech -- MANAMANA, which stands for Microsoft, Apple, Netflix, Amazon, Meta Platforms, Adobe, Nvidia, and Alphabet. It's catchy. You can sing it to the tune of the song from the Muppet Show. And in all seriousness, it perfectly encapsulates the power and influence of the largest segment of the American economy -- technology.

Investing in the MANAMANA basket makes sense for a lot of investors. But what about folks who want to generate consistent and growing income from dividend-paying stocks? Have no fear, CLUTCHCASH is here. It consists of 10 dividend-paying members of the S&P 500 from a variety of industries. Here's what makes the CLUTCHCASH basket a good buy now.

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Image source: Getty Images.

The challenge of finding a competitive yield

The average stock in the S&P 500 yields just 1.2%, the lowest in over a decade. There are a couple of factors at play here. For one, more and more companies are choosing not to pay dividends. The theory held by many non-dividend-paying companies like Amazon, Netflix, or even non-tech names like Berkshire Hathaway is that they can earn their shareholders more money by investing and growing the business than by paying dividends. Companies that don't pay dividends make up a larger share of the index than they used to, driving down the average. Next, many stocks are increasing in share price at a faster rate than they are growing their dividends.

Great companies may double their dividend payouts over the course of five to 10 years. But if their share price triples, quadruples, or quintuples over that same time frame, then the stock will yield less despite having increased its nominal payout.

The challenge for income investors is finding a yield that's high enough to supplement income, combat inflation, and add incentive to holding a stock over time without taking on too much risk. There are many companies that sport double-digit dividend yields. But oftentimes these high yields are built upon a house of cards by companies with shaky fundamentals, volatile earnings, and weak balance sheets. And a dividend is only as good as the company paying it.

The CLUTCHCASH 10

The companies comprising CLUTCHCASH are all industry leaders with proven track records for growing their sales, earnings, and dividends. Except for AT&T (NYSE:T), all companies have substantially increased their quarterly payouts over the last 10 years.

Company

Sector

Dividend Yield

10-Year Dividend Percentage Change

Caterpillar (NYSE:CAT)

Industrials

2.1%

141%

Lockheed Martin (NYSE:LMT)

Industrials

3.4%

180%

United Parcel Service (NYSE:UPS)

Industrials

2%

79%

Target (NYSE:TGT)

Consumer Staples

1.4%

200%

Chevron (NYSE:CVX)

Energy

4.6%

65%

Honeywell (NASDAQ:HON)

Industrials

1.7%

163%

Clorox (NYSE:CLX)

Consumer Staples

2.8%

93%

AT&T

Communications

8.3%

18%

Starbucks (NASDAQ:SBUX)

Consumer Discretionary

1.8%

476%

Home Depot (NYSE:HD)

Consumer Discretionary

1.8%

469%

Data source: YCharts.

Buying equal parts of each stock would net an average dividend yield of 3%. While it may not sound like much, a nearly guaranteed annual return of 3% is meaningful considering the low-interest rate environment we are currently living in.

Delivering income, value, and growth

What makes CLUTCHCASH unique is that its value isn't solely derived from the dividend yield. Rather, it grants an investor exposure to a variety of industries that play to each other's strengths and weaknesses.

For example, companies like Lockheed Martin, Clorox, and AT&T have recession-proof characteristics, but low growth rates. Caterpillar, Starbucks, Target, and Home Depot are faster growers, but more susceptible to economic cycles. UPS and Honeywell are diversified industrial behemoths that have track records for generating high free cash flow and operating with stronger balance sheets than their competitors.

Some investors may be scratching their heads at Chevron. But there's a reason Chevron is the only oil stock in the Dow Jones Industrial Average. Chevron has a better balance sheet than its peers, was one of the few oil majors that didn't cut its dividend in 2020, has made timely acquisitions, and is perfectly positioned to thrive in both a $40 oil environment and the $80 oil environment we are currently in.

Why CLUTCHCASH could be right for you

Whether you agree with all 10 CLUTCHCASH stocks or would rather handpick your favorites, the lesson here is that building a basket of different but equally strong companies is a better way to get an attractive yield than just finding a single dividend stock. Ultimately, the dividend stocks you like will depend on your risk tolerance and what sectors of the economy you like to invest in. My hope is that CLUTCHCASH will provide a good starting point for folks just starting out, as well as a yardstick for experienced dividend investors to measure against.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.