I already mentioned in my article “Why I chose dividend strategy as the right for me“ why I’m using the dividend strategy. I see my goal to become financially independent as a project. A project of my life! On the one side I could use my current income to live my life. Doing all the great things and buying a lot of stuff, travelling and driving a big car. But if I live my life yet, my retirement will be less comfortable. Because I will be needful for income but the pension income will be less than my income yet. My life later will go down, it will become very hard to live. At the moment I will retire in 37 years. What’s the other side? I could live now a little bit frugal, saving my money, don’t buy stuff I don’t really need, to resign some unneeded things. I will retire earlier, living free of work for somebody who’s is earning more as I do. I’m kind of a slave, but it will be changed at that time I will be free. Now I’m building up my freedom.
Building a dividend portfolio is a project – it’s my personal project. Nobody can do it better as myself. Why? I’m sure I will do some mistakes in future. I will do something what will be wrong. But I will learn – for myself yet and for myself in future. And that’s what we are living for. Now I want to imagine how I built a dividend portfolio. A portfolio for my future, my retirement and my freedom. Building a dividend portfolio is a process, it’s not there from the beginning on. And it will be processing my entire life. If I see a dividend portfolio I would compare it with a botanical garden. What does it mean? You buy a garden without anything on it. No trees, no bushes, nothing! First of all you will inform yourself how to seed something and how to harvest. That stage of being a gardener is the same as a shareholder. You need to inform yourself how it works. What is the stock exchange? How can I buy stocks? What are dividends? What is my strategy?
After informing the gardener will seed the first trees and bushes. Some of them will work fine, some of them will fade. From the one tree he will earn, from the other loose. It can be fruitful or not for him. But he will analyze why some of the trees don’t bring an income for him. Maybe it was not the right for him because he doesn’t know enough about what he sow. If seeding was successful the gardener will have an income – with this income he will buy more seed to increase his income. Then he will diversificate the different trees and bushes. Some of them will grow faster but the income will be steady, another one will grow slower but the income will also grow afterwards. And some of them won’t grow anymore because the weather is not good enough for it. And one day the income will pay the expenses of the gardener and he will be able to live better than the others. Maybe you can imagine the analogy between investing and seeding.
Now I come back to the stock exchange and how I build a portfolio. Keep in mind, it’s still in process. I started beginning of this year with nothing. My capital was exactly $0.00. Now I own a 3-figure portfolio and I am invested in 3 companies. As you can see I’m still a beginner. My business only starts yet.
There are a lot of good companies out there. Just to say some: Coca Cola (KO), Johnson & Johnson (JNJ) or Procter & Gamble (PG) – all of those companies are solid investments and “must-have” in a portfolio of dividend stocks. The growing of these companies are steady and not really prone to the fall of stock exchange or any crash or any bubbles. These companies are paying dividends for the last decades and since many of years. Also there are “high yield” stocks where the yield is very high but the growing is less. For example Philip Morris (PM) is one of them, or companies from the energy/telecommunication section. The growing is very vary and sometimes these companies are cutting or decreasing dividends. At the last, very interesting for a strategy of dividends are companies like Apple (APPL) or Start-Ups. Almost they are paying a low dividend but the growth is extremely. The management is looking more for growth than to pay dividends. Some of these companies will pay a higher dividend once.
Everybody will tell you some different if you build up a new portfolio or just begin to build up a dividend strategy. There are so many consultants (professionals, investors etc.) out there. Every investor have a different way to do it. There is no “correct and best way” how we can develop it. Its because every investor have another background – different knowledge, different capital, different mindset, different goals. But we can learn from others, we make mistakes and sometimes we make it better. If there would be “one way”, everybody would do that. But everyone has his one.
Now I started to invest by dividend growth strategy and I have my goal: $25000 income by dividends yearly. But how to deal it? My savings will be 20 up to 50 % of my income (you can see my budget into section Monthly Budgets). Currently I am able to save approx. $250 – $1500 per month and have already added $650 to my account. New savings will be added beginning of March. Let’s take a look to my first investments.
2. Royal Dutch Shell
AT&T and Royal Dutch Shell are “high-yield” stocks which bring me over 5% per year. In my opinion both are more risky as investments into J&J, PG or KO. Royal Dutch Shell is very depending on development of oil. The oil price is very down at the moment, so the earnings will not occur like in the past. AT&T is selling in a mature market, also the growth could be very slowly. AT&T and RDS have a high yield and will bring some higher income to my account in future. My intention to buy these both stocks is not the growth of both companies, its more to receive a high income by quarterly payment. This income will be reinvested once received.
The next step should be to invest my income into solid companies with a high dividend growth from the last years. These companies are selling products for the daily requirement. Or products what people are paying premium for. Can you imagine a life without drinking coca cola or using soaps, bathroom tissue or cream for hand and face? Do you like to go out for lunch at McDonalds? These are only examples for products of daily use. These companies are paying growing dividends since decades. The current yield of these companies are only in the middle with 2,5% to 3,5%. You have to hold them very long to receive a yield on costs of 5,0 % up to 10,0 %.
In few years I will be able to invest into low yield stocks with a massive of growth.
1. Step: Investments into high yield stocks – “High Yield Stocks”
2. Step: Investments into middle high yield stocks with view on dividend growth – “Middle Yield Stocks”
3. Step: Investments into low yield stocks with massive earning growth – “Low Yield Stocks”
I think a balanced portfolio is the key to become successful and earlier financial independent. What does it mean exactly? The most weight of a portfolio should be “middle yield stocks”. A part of it should be “high yield stocks” and the last part “low yield stocks”. The split could be 50% “middle yield stocks”/25% “high yield stocks”/25% “low yield stocks”. I guess the diversification is very important for everyone. The diversification of industries or countries isn’t enough to be aware of, it’s the diversification of stock types too.
What do you think? It’s the right way? How did you develop your portfolio and what are your thoughts?
Thanks for reading and take care!!!