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
1. You Are An Owner
"Buy and hold your stocks as though the market will close tomorrow, with no set date for re-opening." - Warren Buffet
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 it is true that the prices of our stocks will fluctuate, let’s never forget what those numbers actually mean; ownership in some of the best companies the world over.
When you are investing, make sure to keep in mind that you are not just buying stock into your dividend portfolio – 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.
2. 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.
By adhering to the idea that 'Income is King', I can actually celebrate when stock prices go down, because I am able to buy more of the great companies that I own at lower price points.
3. 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 in our dividend portfolios: 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.
By focusing on the dividend payment, it also helps to put the relatively ambiguous market price and market actions into perspective. This is because you now have one main data point with which you can ascertain the effect of market changes.
The stock went up - ask yourself, "is this dividend now more adequately valued?" Or if the stock goes down - "Is there material weakness that will negatively affect the company's operations into the future?"
Use the dividend payment as your insightful guide into the company's overall operations.
4. 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.
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.
5. Recognize the Power of DRIP
DRIP investing is one of the most powerful tools for the modern-day investor. Not only does it allow for more of the 'set-it and forget-it' mentality to stock investing, it helps the investor continue his or her holdings on autopilot.
Take for instance my current portfolio. I get a set amount of dividend income each year - right now it happens to be a shade above $4k. Each year, this $4k is deployed back into the stocks I already own and want to own more of. Through very little extra work (virtually none at all), I am able to own more of the great companies in my portfolio.
I find that this really helps me in my journey as DRIP investing is a form of 'dollar-cost averaging', which is a great tool for any modern age investor. By investing into the markets at regular increments, we are able to take advantage of various price points, which helps to average out our purchases over time.
6. 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!