As mentioned in my first blog post on wanting to build a dividend portfolio in order to generate a steady income stream once we retire, I wanted to start a new blog post and document building this portfolio. The goal will be to build a portfolio to generate roughly $250/month with an average portfolio yield of 3%, a $100K portfolio (read: Index Funds vs. Mutual Funds and Investing in High-Yield ETFs).
Building a Dividend Portfolio is a good way to provide passive income when you stop working. It isn't a get-rich-quick scheme but through steady contribution and patience, the portfolio should grow steadily by itself with a dividend reinvestment plan and compounding effect.
Dividends are profits that companies choose to share with shareholders. The amount, method, and time of dividend are determined by the company's board of directors and they are usually issued in cash through your brokerage.
Asset Mix to Include Bonds
With a 3% inflation rate, the dividend rate would be worth less in the future if the company does not grow its dividend rate. A portfolio that combines both bonds and equities will help with inflation.
Be Patient, Time the Market
A great income portfolio takes time to build and although you should be contributing consistently to the portfolio, you can also purchase shares when the price goes down and is on sale. Purchasing and adding shares when the price goes down and lowering your average cost will provide a higher yield. Once you have a set amount of stocks in your portfolio, you can wait until the share price goes down such as in a bear market to purchase more. For example, if you purchased a Coca-Cola during the pandemic crash at $38/share knowing they have a steady track record of 40 years, your effective dividend yield will be 4.7% rather than the current 2.93%.
Find Good Stocks, Hold for a Long Term
Blue chip stocks like Home Depot have paid dividends for decades and since 2011, the stock has gone from $35/share to $300/share. At 2.9% yield, the current dividend per share is $8.7/share. If you purchased your share in 2011 at $35/share, your effective dividend yield is 25%.
Diversifying Your Portfolio
Diversifying your weight to include five to seven industries would help when one sector is going through turmoil. Having 10 oil companies may yield high dividend income, but when a sector is going through a problem, it won't hit all of your holdings at once. Likewise, investing in risky ETFs can be trouble when a macro-economic takes a hit.
Dividend Aristocrats
Ideally, the portfolio should contain some of the dividend aristocrats and Kings that have consistently raised their dividends for over 25 and 50 years respectively.
Watchlist
Schwab U.S. Dividend Equity ETF; SCHD 0.06%, 3.4% yield (target: $60)
AbbVie Inc; ABBV, 3.66% yield (target: $120), Healthcare
Walgreens; WBA, 5.37% yield (target: $33),
Target Corp; TGT, 2.61% yield (target: $120),
Microsoft; MSFT, 0.93% yield (target: $200), IT
JPM Chase: JPM, 3.14% yield (target: $100), Financials
3M Co.; MMM, 5.91% yield (target: $100), Consumer Stapes
Verizon: VZ, 6.61% yield (target: $35), Telecom
Simon Property Group, SPG x% yield (target: $90), Real Estate
4/9/23:
Decide to build a $100K portfolio in 7 years
Contribute $500/mo. consistently to the portfolio
80% equity, 20% fixed income (bonds)
.................. to be continued
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