Dividend Portfolio Strategy: How To Build A Dividend Portfolio

People realize a profit from the stock market when they sell shares that have appreciated in value. But you can also get an annual return from the shares you hold through dividends.

A dividend is a sum of money paid to the shareholders of a company when the company has extra money. A dividend portfolio is a collection of shares from different companies bought with the objective of making profits through dividends.

Source: thestreet.com

In this post, I will tell you how to build a dividend portfolio and discuss my dividend portfolio strategy. You will learn about:

• building a dividend portfolio
• what to pay heed to when building a dividend portfolio
• my dividend portfolio strategy

What are Dividends?

Before building a dividend portfolio, it would be better to understand in crude terms what dividend is and why companies opt to pay dividends.

Source: fool.com

As stated above as well, a dividend is a sum of money paid to the shareholders of a company as a reward when the company has some extra bucks.

The main motivation behind paying dividends is avoiding excessive taxes, rewarding the shareholders, attracting new investors, etc.

Which Companies Pay Dividends?

Almost all well-established firms have paid dividends. But there are some companies which pay dividends systematically: regularly and at increasing rates. A good dividend portfolio strategy is to target the latter.

Some notable companies that don't pay dividends are Berkshire Hathway, Facebook, Tesla, Google, etc.

Advantages Of Building A Dividend Portfolio

Building a dividend portfolio have a lot of advantages besides the obvious one:

• By building a dividend portfolio you will get a regular income.
• Building a dividend portfolio following a good strategy, most likely your rate of increasing income will beat inflation.
• A good dividend portfolio will also appreciate over time. Hence, a dividend portfolio serves two purposes.

Dividend Portfolio Strategy

This section is divided into two parts:

• Questions to ask yourself while building a dividend portfolio.
• Dividend portfolio strategy.

Building A Dividend Portfolio: Choosing Stocks

You should always ask the following questions while building a dividend portfolio:

• Does the company pay dividends at all? This may seem like a redundant question but as you saw above, some notable companies don't pay dividends at all.
• What is their scheme of paying dividends? The answer to this question will be a deal-breaker when building a dividend portfolio. In general, you want to select shares which pay dividends regularly. Give preference to shares which pay higher or frequent dividends.
• How long have been the company paying dividends? Dividends are paid only if the company and the board of directors decide to. It is important that a company has a positive record of paying dividends.
• What is the status of the company? A company with a load of extra cash is more likely to pay better dividends than a company under debts. Check a company's balance sheet to see how much debt and extra cash the company has. This kind of information can be found under the "investors relations" page of a company's website.

My Dividend Portfolio Strategy

In this section, you will find my dividend portfolio strategy which includes information such as diversification, how much to invest in building a dividend portfolio, etc.

• How much to invest in building a dividend portfolio? When it comes to building a dividend portfolio, more is better. Dividends are paid as percentages of the worth of shares you hold. If you hold shares worth of $10K and the average dividend payment of your portfolio is 4%, you will make $400 annually.
• Diversify as much as possible while building a dividend portfolio. My dividend portfolio strategy is to invest in at least 20 different shares in five different sectors. However, I hold higher percentages of shares which give better dividend returns.
• Prefer dividend performance over stock growth. The purpose of building a dividend portfolio is earning through dividends. In case a share lacks growth prospects but has a good dividend system, take it in. But give preference to shares that have growth margin as well.
• Reinvest your earned dividends. As stated in the first point, your dividend portfolio gets better as you invest more money in it. If you don't have use of the money you make through dividends, reinvest them into your dividend portfolio.

Conclusion

With the above points in mind, you should pay some time into building a dividend portfolio. As dividend shares are held for a long time, it is important you choose your cards carefully.

If you liked the post, you can leave a comment.

You can subscribe to this blog by clicking on the "Subscribe" button at the top of the page.

By subscribing, you will get my ebook for free and the latest posts directly to your email's inbox.

And as always, thanks for reading!