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How I Build My Dividend Portfolio

How I Build My Dividend Portfolio

Dividend stock investing is a great way to produce passive income. You can also grow your wealth over time. Compounding can be a powerful tool.

As long as you understand some of the myths and risks of dividend stock investing.

But how do you actually build a dividend portfolio?

In this video and post I'll explain the rules I use to build the dividend portfolio for my clients.​

Are you doing any passive income investing? How do you pick your stocks? Are you going for the highest dividends?

Let me know in the comments at the bottom of this post.

The Simple Rules

​Like any investing strategy, you want to keep it simple. Don't have a laundry list of 30 things to check before you decide to buy or sell a stock.

When it's time to update, you want it to be simple and actionable. That way you won't second guess yourself or be frozen by "analysis paralysis".

Here are the simple rules of my dividend stock portfolio:

  1. ​Easy to manage
  2. High volume stocks
  3. Dividend good, but not the highest
  4. Lean towards value investing

Why don't you want the highest dividend payers? I explain in this post.

#1: Easy To Manage

Making your portfolio easy to manage is first. If you're not able to manage it easily over time, there's no point in doing it.

For my portfolio, here is the setup:

  • 15 stocks
  • Stocks are equal size (6.66% of total)
  • Update/rebalance once a quarter​

With that kind of setup, you have an easy job. Plus you have diversification, but no stock makes up a huge portion of the portfolio.

#2: High Volume Stocks​

High volume just means a stock is traded a ton each day.

The reasons you want this are:

  • ​It's easy to buy and sell and
  • The bid/ask spread is very small

Here's a picture of the volume of stocks in my dividend portfolio right now:

Picture of dividend stock volume

Volume and bid/ask spread

Look at the right column (in white). See how there are hundreds of thousands, and millions, of shares of stock traded each day.

Also see how the bid/ask difference is only a penny for most. That means you're being efficient when you buy, sell or rebalance.

That's why you want high volume stocks.​

#3: Dividend Good, But Not The Highest

You want a good payout, but don't just search for the highest dividend stocks you can find.

Why?

Because you want a company that rewards the owners with cash, but not all the cash.

You want the company to reinvest in their business. That way the company (and the future income) has a good chance to grow.​

Here a chart of the % yield of the stocks I use right now:

Chart of good dividend paying stocks.

Dividend yields of 3.5% to 5.5% are good.

Look at the white column. The annual income payout is typically between 3.5% and 5.5%.

You could find stocks that pay a much higher dividend than that. But there are certain risks to buying those super high dividend stocks.

#4: Lean Toward Value Investing

We know that value investing makes sense over long periods of time. (Thanks Warren Buffett!)

By ranking our potential list of stocks by their yield, we can sometimes take advantage of value investing.

I'll explain by showing you two examples.

First, here's a stock we recently added:​

Dividend stock value investing

Dividend stock falling caused the yield to rise. We bought it on 4/3.

This stock pays a consistent dividend, but the yield was not high enough to rank in our top 15.

But looking at the chart, you can see the price dropped quite a bit over a few months.

Since the company kept the cash payout the same, the drop in stock price make the yield bigger. 

Yield % = yearly dividend​ per share / stock price X 100

​Then it made it into the top 15 when I updated the portfolio.

So we bought it on 4/3. That's over on the right hand side of the chart.

What if a stock we own goes up a lot? Does that mean it's not a value stock any more?

Yes, sometimes. Here's an example:​

Dividend stocks can go up

Dividend stock rising, but no increase in the dividend. We sold it.

This stock pays a good, consistent dividend. But when the stock rose in this chart, the company did not raise the amount it paid.

That made the yield go down. And kicked this stock out of our top 15.

We sold it for a profit on the right hand side of this chart.​

Summary

Well, there you have it. That's how I build a dividend stock portfolio for my clients.

It's simple and actionable. Here are the rules again:

  1. ​Easy to manage
  2. High volume stocks
  3. Dividend good, but not the highest
  4. Lean towards value investing

I hope that was helpful.

Leave me a comment below if you have anything to add.

Do you own any dividend stocks? What are your ideas about picking a dividend stock?

Let me know down below in the comments section...

See you next time!

Tommy Sikes​

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