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Live Off Dividends

5 key facts for a successful dividend portfolio! 💱

Updated: Dec 3, 2023

This will be the second education Article.

I decided to teach you about the 5 key steps/facts that you always have to keep in mind when it comes to building a successful dividend portfolio.

I’m very proud of dividend segment on the blog!


Fact 1. Brokerage account, costs 🔒


It may look like it isn’t an important fact, but trust me here many can make mistakes. As some famous quotes say „The most important thing isn’t always how much you make but how much you can keep!”. I like to use this quote also here because if your fees are high then you can easily draw down your dividends in the beginning.


If I use my history as an example then I can say the beginning was hard with only 100$ investment every month. When I purchased a stock, the fee was always min. 3$ or 0.001 USD/pc. So with my only 100$ every month I never reached the buy amount for the 0.001 USD/pc so I had to pay always the 3$.


When I bought another ticker symbol then it was again another 3$. Right now my portfolio is big enough that it doesn’t bother me anymore.

There should be no monthly and inactivity fees. It is also very important in the beginning at least. It is a dividend portfolio so you don’t trade every day, maybe you haven’t had enough money in the next month to invest, after 10-20 years you reach your goal and you want to live off your dividends and not invest any money back then applies the same rule.


Withdrawing the money and crediting the dividends should be also free. At least free withdraw once a month. 💰


Investor protection. There are some brokerage accounts with 20.000eur of protection, some are in the 100.000-300.000eur category or even higher. In my opinion for the beginning you shall choose one that has at least the 20.000eur protection and later on when your portfolio reaches this amount then you can switch on another.


Fact 2. No more than 25 stocks 🗠


Many famous investors agreed on this rule. If you have more than 25 stocks in your portfolio then you are more likely to not understand every business that you have in your portfolio, you can’t track and follow every news about them and make decisions. More than 25 stocks aren’t helping anymore the diversification either. 🏭


My suggestion is to begin with the amount you want. If it is something small then invest in only one company and after that add another company into your portfolio and slowly build it until you reach the 10th stock. Then make sure that you have in each stock 1000$ and then go for the 11th, 12th and so an…


Fact 3. Diversification 🖖

This part has a very tight connection with the last part of this Article. There are many quotes out there but I want to express only the ones from Warren Buffett.

- „Don’t put every egg of yours into one basket!” 🧺

- „Never test the depth of the river with both the feet!” 🌊

In other words, if you put all of your money into one stock then if it fails, you lose your money also. If it fails dramatically then you may not handle all the stress and you sell every position and you lose money.


Of course, there is always a small percent chance that this one stock will go high in the first year and if you sell, then you will end up with a good amount of extra money but it is mostly just speculation and I don’t like speculating.


As you can see from this example it isn’t safe at all to play like this. That’s why is very important to buy stocks in different sectors. In this way, your portfolio will be well diversified. Sometimes one will rise and others will soar. This is how the world functioning and the only way to go against is to diversify wisely.

An example from my portfolio


Right now the financial banks and stocks are down in my portfolio by about 30%, but on the other side because of the sad news and situation in East Europe, my positions in LMT are up about 20%.


I reached my very first 100% unrealized return on CVX because of the gas prices. I know it will go down again and I’m not selling anything but it is good to see how it can rise in such a short time. ⛽


Overall my portfolio isn’t in the negative territory, despite the negative returns because of the good diversification.


There is one positive thing about the negative returns. You can buy at lower prices again, but more importantly, there is always the dividend that gives you hope and it doesn’t matter where the stock price is, if it is a good company and they don’t want to cut its dividends then your passive income will come every time. 💵


Fact 4. Stocks with a minimum of 10 years of the dividend record

📋 Here is a very helpful link that you can use every time to dive into stocks:


Here you can download every month a fresh spreadsheet about dividend stocks. In there you will find a list of the dividend champions. They have a dividend-paying and increasing record of 25+ years. Contenders have a 10+ years record. Challengers are a bit risky with only 5-9 years of record.


This list as I said can be very very helpful and it contains many pieces of information, it will be always updated every month!


So, as the title says: minimum 10 years of dividend record. It is important, in this way we can estimate that the company will continue to pay and raise its dividends.


In the spreadsheet, you can take a look what is the average number by how much they are raising their dividends every year, every 5 years, and 10 years(DGR1, DGR5, DGR10).


Of course, there are other metrics also to look at, but overall this is a good starting point and you have a list there with more than 350 stocks with many pieces of information. Much better than going through the hundreds of thousands of stocks that are available out there.


Here is a nice video which shows more about fundamental analysis of stocks:


Fact 4. At least one ETF

Considering investing and age, if you are young like me, then probably you want to pull out the money later in your life. So you don’t need that much of a dividend. Of course, it’s good to have and reinvest it but just to be safer I suggest giving a small portion in your portfolio for an ETF (Exchange-traded fund); the most famous one is the S&P500 index, replicated by SPY ETF.


There are 512 stocks in this index. So if let’s just say 50 companies don’t perform well, there are another 462 companies in the index which does perform well. Then the index will continue to grow.


Here is the evolution of the S&P500 index in the last decade:

S&P500 index chart

It is like you diversify your small amount investment between 512 companies. You don’t have to buy each one of them separately. Just buy the ETF which holds them.

About index tracking ETF investment is very important to know that you have to buy the index over and over again. It doesn’t matter what the price is. Just buy and forget about it. This is called dollar-cost averaging.


Last words…🔚


Of course, I didn’t include every step for a well-performing portfolio but these are good launch points and the first things to be considered. I will explain a lot more in the next months about dividend investing.


I hope you found this to be exciting and it is helping you to make better investment decisions.

Best regards,


Adam

2 comments

2 Comments


Guest
Mar 17, 2022

I couldn't agree more on the 5 key facts for a successful dividend portfolio, so true. If we do bear it in mind always, that would be a long-term stable and profitable diversified portfolio.

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ARTInvest
ARTInvest
Mar 17, 2022
Replying to

Thanks for your feedback! People who understand this have more chances to win the game of investing.

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