Going shopping is one of our favorite things to do—why should dividend investing be any different? Many people avoid handling their own investment accounts because it can seem intimidating to choose their own stocks. Let’s fix that today by building a small dividend portfolio.
Welcome back to the How to Start Dividend Investing 101 series (101, 102, 103), where I walk you through the process of dividend investing. Please take the time to read the previous articles so that you are all caught up before we go on our dividend shopping spree.
Finally, you have the basics of dividend investing: you found your “why,” set tiny goals, and picked your platform (preferably STASH). Now, what freaking companies and stocks do you invest in with your hard-earned dollars?
Preferred Shares 103: The Rule of 72
This is the part that most people try to avoid because they think every company has to be a home-run hitter. People also get nervous about stocks going up and down. Dividend investing is different from investing for capital gains because dividend stocks have a dividend yield.
The dividend yield is the annual dividend divided by the stock price. For example, if XYZ company costs $100 and an annual dividend of $5, the dividend yield will be 5%. Since all dividend-paying stocks and companies have a yield, let’s start there when building our portfolio.
My personal target is a 4% annual capital appreciation and a 4% dividend yield. What will this look like after a year? If I invest $10,000 into my 4/4 portfolio in a year, the ending balance will be $10,400. I will have also received $400 in dividends. The goal for my portfolio would be to live off the $400, while the rest of my account would continue to grow uninhibited.
Of course, I cannot live off $400/year, but what if I had $1 million in my portfolio. The numbers would be $1,040,000 at the end of the year and $40,000 in dividends. Now we are talking. In fact, that is our next dividend investing goal, to reach $1 million in the next five years.
Now, you have to choose your target goals for capital appreciation and dividends. My 4/4 goals are pretty easy to achieve with a mix of index funds, blue chip stocks, and high-yield products. However, I am probably a little more advanced than you. So let’s start with a target goal of 5% capital appreciation and 3% dividend yield.
Stock Market Investing 106: High Yield Alternative Investments
I like these numbers because you can avoid the high-yield products for now. Let’s also start with $1,000 because it is a nice safe number. Remember, dividend investing is a marathon, not a sprint. You can see 52 weeks of my dividend challenge where I started with $170 and reached $23,000 in one year.
Another good method would be to choose the number of companies you want to invest in when you start. We also need to remember that index funds and blue-chip stocks pay quarterly. We have some REITs that pay monthly as well. We want our income to flow consistently, so let’s carefully choose ten stocks, $100/each, that pay us across the various months.
Okay, now our dividend portfolio is starting to take shape. Let’s do a quick review before we move further.
- We want to achieve 5% capital appreciation and 3% dividend yield
- We have $1,000 across ten companies
- We want to spread out our income
Now, let’s get started. I like to start with my favorite index fund, the Vanguard Total Market Index fund or VTI. Typically you get 7-10% annual returns from VTI plus a dividend yield of roughly 1.5%—this is the main growth element of the portfolio. If you want to add a full-on growth stock like Tesla, Apple, Microsoft, Amazon, you can put it in this position as well.
Do I Need a lot of Money to Start Investing?
Some people only use blue-chip stocks for their dividend portfolios, but I like to have a growth element. You can read my reasoning in “Investing for Dividends 104: The Importance of Index Funds.”
Next, let’s pick a monthly paying stock. It is always good to have a consistent monthly paying stock or fund. I would typically add my favorite Closed-End Fund to this portfolio. My favorite closed-end fund is Pimco Dynamic Credit or PCI because it pays a 9% dividend yield on the first day of every month.
But, I know that many apps like STASH and Cash App don’t have CEFs available for investing. Instead, I will use my favorite REIT, AGNC, as my monthly payer. AGNC is a mortgage REIT that yields somewhere between 8-10%.
Great, we just need to pick eight more stocks. We need to pick three stocks for each of our quarterly periods. The periods are January (Jan, Apr, July, October), February (Feb, May, Aug, Nov), and March (Mar, June, Sep, Dec).
Stocks vs. Cryptos
Luckily, my article “My 24 Favorite Blue Chip Stocks” has all the information we need to pick our target stocks. We will need 3 for the January group, 3 for the February group, and 2 for the March group because VTI pays in March.
So go ahead and pull up that article and pick your stocks. I will lay out my picks below. Remember, this is the fun part of dividend investing. If you know a company, pick them. If you go to Walmart every day, then you may want to invest in them. Don’t overthink your decisions. We build trust and confidence as we continue to invest, learn, and research.
| Company | Ticker | Group | Yield |
| Phillip Morris | PM | January | 4.80% |
| Coca-Cola | KO | January | 2.97% |
| Walmart | WMT | January | 1.45% |
| AT&T | T | February | 7.54% |
| Verizon | VZ | February | 4.52% |
| Procter & Gamble | PG | February | 2.40% |
| Prudential | PRU | March | 4.41% |
| Public Storage | PSA | March | 2.47% |
| Total Stock Market | VTI | March | 1.26% |
| AGNC | AGNC | Monthly | 8.95% |
Wow, it was hard to pick just those few stocks. I love dividend investing and picking dividend-paying stocks. I should be able to reach my 5% capital appreciation goal reasonably easily. My average dividend yield is 4.077%. I could always swap out AT%T for a stock like ALLY (Ally Bank), which is on a tremendous growth path, with a tiny 1.45% dividend yield—if I wanted more growth vs. yield.
Why Do I Need to Invest in the Stock Market?
There are so many ways to invest for dividends; you just need to understand the concept. I was able to research my picks on Yahoo Finance very quickly. If you don’t know the company, please read and understand what they do, who they are, and how they make money. Do not pick companies just for the yield.
A quick word on mindset. Investing for dividends is the long game, not a pop-and-swap charade. In the article “Let Dividends be Your Lighthouse through Retirement,” I explain how having dividends can be life-changing.
Dividends are the marathon that you always wanted to run. You and these companies will grow to be best friends. They will have some hard times, but also some great times. Unless something significant happens or changes, I stay invested with my companies for the long haul.
I hope this helped you get a better look inside dividend investing. I know you may still be on the fence, but you can build watchlists on some websites and track your progress without spending money. Paper trading is an excellent way to get more comfortable before jumping into the fire. Enjoy and Happy Investing.
- Build Passive Income: 21 Passive Income Ideas (book)
- Free PDF Downloads: Download FREE PDF books here
- Financial Mindset: Become CEO of Yourself (book)
- Retirement Planning: Retirement Planning at Any Age (book)
- Investing: How We Plan to Retire on Dividends (book)
- Cryptocurrencies: My First Book on Cryptocurrencies (book)
- Real Estate: Financial Independence through Real Estate (book)
- Business: Retire Rich, Retire Comfortable with a Business (book)
- Everything!: The Biggest Book on Passive Income Ever! (book)(Web Edition)(Art Edition)
- I bought a Kindle Oasis: Check it out Amazon
- Read My Books for Free: Free Kindle Books Schedule
- Sign up to Access our “Hidden” Free Kindle Book Schedule
- My first Children’s book: A Child’s First Book on Passive Income (book)
- Book Reviews: 54 Takeaways from 54 Books (book)
- Want to Build Passive Income from Books and Affiliate Marketing? (Learn here)
- Writing: Can Grammarly Make You a Better Writer? (direct)
- My Favorite Chromebook: The Ultimate Chromebook (direct)
- Follow us: On our Facebook Page and Join our Facebook Group
- Amazon Author Page: Check out my author page on Amazon
Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Leave a Reply