The Dividend Portfolio
In my quest for Financial Freedom, I am currently building up my dividend portfolio. This portfolio consists of investments in solid, dividend-paying stocks. The end goal is a $1M+ dividend portfolio that generates $50k+ in dividend income per year.
Below are my current holdings:
The Dividend Portfolio Strategy
The dividend income portfolio strategy is one that I find best suited for me as a value investor. By nature, I am more inclined to a ‘buy and hold forever’ strategy than someone out to day trade towards millions.
I do not discount day trading – I believe there are many ways to earn wealth and we all can find the way(s) that work for us. For me, I have found my muse in buying great companies at great valuations while earning income each and every year through a constant, stable dividend payment. So long as I am getting an adequate dividend, I am unconcerned as to which direction the market happens to go because my dividend income will continue to rise.
This to me happens to be the beautiful part of the strategy – I adhere to a ‘set-it and forget-it’ mode where I trust my initial analysis that this is a good stock at a good price. I will review all my positions every so often and do follow the latest news, but I have the main goal of never selling a position that I own. Unless a dividend is cut, I plan to continue on this path for each of my positions.
Key Points to A Dividend Investment Strategy
You Are An Owner
It is the goal of an astute investor to see investments in companies as actual ownership. In this day and age, there is a trend to see stocks as simply numbers that go up and down. While that is true in some respect, let’s never forget what those numbers actually mean; ownership in some of the best companies in America.
When you are investing, make sure to keep in mind that you are not just buying stock – you, in fact, are becoming an owner in a company. Sure, for most of us, we are ‘small’ owners, but owners none-the-less. As soon as you grasp that you are taking ownership in companies rather than buying and selling an electronic number, your whole investment strategy will go to a new level.
Income is King
In regards to investing, I am primarily concerned about one number: dividend income. Whether or not a stock goes up or down in value is of little consequence to me so long as the fundamental strength remains. I find that this type of metric keeps me locked onto the main goal of generating income.
I also find that maintaining focus on the income metric keeps me focused on the end goal; a dividend portfolio that kicks off dividend income that can support me through ups and downs in the market.
The Dividend Payment is All There Is
In all portfolios, stocks will go up and down, which is completely normal. We are only concerned about one thing: is the dividend stable or increasing and will the payout continue to be covered in the years to come? So long as the dividend is covered, we are fine with any market fluctuations that will occur. The only thing that cannot happen is the dividend being cut or eliminated altogether. That is an immediate condition for re-review and probable selling of the stock.
Diversification is Your Friend
Will all my stocks continue down the path of growth and a solid dividend payment? I surely hope so, however, I am cognizant of the dynamics of market changes and the unpredictability of all investments. Therefore diversification across various stocks and sectors is key to a good investment strategy.
If one stock is down, another is usually up, which counteracts the emotional turmoil from seeing your positions in the red rather than in the green.
I posted not too long ago on Twitter this apt thought:
I continue to hold this view. My current goal is that I will limit the largest position in my portfolio to 15% of my overall holdings. By having this self-imposed percentage metric, it helps to de-risk my portfolio. If one stock trims its dividend or, worst case, bites the bullet, I have many other stocks that will still be performing reasonably well.
You Are In This For The Long-Haul
Since you are geared toward value plays and dividend income, you can divorce yourself from the erratic movements of the markets. While it is good practice to check up on your portfolio in regular increments for developments, it is not a good idea to continual watch and monitor minute-by-minute progress.
Keep in mind that “Markets will fluctuate”; your dividend stock portfolio is no exception. So long as you are confident in your due diligence, continue on the forward path towards Financial Freedom!