Dividend Portfolio

A few months back, I started a small dividend portfolio.

The objective here is to focus on income under the form of dividends, which may help to cover expenses in the future.

Building an extra income stream that is not necessarily linked to our job, in these uncertain times, seems to be a good idea. However, we still need money to build money and our current job is our leverage. 

For quite some time, I was not a fan of holding shares of a company just because they pay a dividend. Time told us that dividends are not guaranteed, and a company may always reduce or suspend this regular payment.

A dividend is always an outflow of money from the company books. Wouldn’t be wiser to re-invest that money into growing the business? This was always a question in the back of my mind.

However, companies can still grow while paying dividends. Maybe not as much as a growth company, but if the underlying business is reliable it is possible.

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Why Dividends?

Dividends allow investors to build a passive income stream or semi-passive. Semi-passive because it may require some work to build and maintain an investing strategy.

Dividends create cash-flow that can be used to pay expenses in the future. Investing in dividend stocks brings several benefits to investors:

  • Regular payments: Most companies pay their dividends on a quarterly basis. This means that every 3 months you will receive a small payment usually announced by the company beforehand.

  • Hedge against inflation: With growing inflation, money does not hold the same value over the years. An income that does not increase with time, reduces our buying power. Dividends that grow over the years can be a great tool to increase our income.

  • Capital stability: In general a quality company is well managed and their business is mature and stable. A history of growing revenues and dividends provides investors a safer way to preserve capital when compared to growth or speculative businesses.

  • Compounding: As with other investment strategies, dividends allow investors to re-invest the money into more shares. More shares mean higher regular payments.

How I Started My Portfolio?

Starting a portfolio always requires some thought and some form of validation. A simple strategy is to buy an ETF that is oriented towards dividend stocks.

However, I opted for a more complicated and somehow riskier approach to build a portfolio on my own by carefully selecting which companies are part of it. My research started with the Dividend Champions list, maintained by Justin Law and made available here.

Normally, this is not a recommended approach if you want to start off with a small amount and do regular purchases. As I’m using a no fees broker, this is then a possible approach.

Most people are better off with the ETF strategy. A fund greatly reduces the investor bias towards individual companies and shields your investment from the psychological pressure of picking winning companies.

Here are some examples of ETF’s.

For each fund, the investor should read the information and agree with the strategy outlined. Sector exposure, weighting, and diversification are always points of analysis.

I have started this portfolio in March with $1000. Later in April, I’ve added other $1000. After that I kept adding about $50 a week.

Time Is In Our Side

People often lose money in the financial markets due to emotions.

Investors should enjoy the wild rides of the markets and believe in it for the long term. While no one can predict the future, the safer bet is to believe in what has worked in the past 100 years.

Historically, the S&P 500 increases in value even with sharp decreases during brief periods.

I have set up an investing framework to allow me to be consistent and disciplined. I usually buy shares every week and keep a reasonable cash position, so I’m ready to take advantage of market pullbacks.

The Dividend Portfolio Progress

The portfolio is basically built and I am holding 42 different stocks. I’m diversified across sectors, and now I just need to maintain it.

Sector Exposure

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As for the progress, I let the graphs below speak for myself:

Dividend Portfolio Value
Dividend Portfolio Growth
Dividends Collected
Dividends Received per Month

Important to note that I automatically transfer funds into this investment account every week.

This saves time and avoids emotional decisions based on news or other life events. Thank you for reading and hope I contributed positively to your day!