Daily Dividend Portfolio Investment Rules
After living through the world wide stock market melt down in 2008 and 2009, I realized
that if you are going to invest in equities, there is never a guarantee that any individual stock will hold it’s asset value. During the sell-off, many high quality stocks declined in value 30/40/50% or more, just like their lower-quality counterparts. There was often no rhyme or reason for valuations – the entire market had deiced to sell. During this volatile time, I decided two things:
- Now is a good time to start buying.
- If you are going to buy equities, purchase shares that offer dependable increasing dividends.
When I started the Daily Dividend Portfolio back in June, 2010 I decided that I needed to establish a set of rules to base my investment purchase decisions on. After watching shares of companies like Citigroup (ticker: C) and Las Vegas Sands (ticker: LVS) trade down in the low single digit range before ultimately coming back, it became very clear that any stock you purchase can go to ZERO. Besides that, knowing that even when times are bad economically, there are always at least one or two sectors of our economy that will be prospering. The DDI Portfolio needed to be built wide enough, across multiple sectors to provide some amount of income even in the worst of times.
With those ideas in mind, here are the rules I use for building the Daily Dividend Income Portfolio:
Rule #1 Look for Increasing & Consistent Dividends – Begin by searching for those companies that are currently increasing their dividend and rank them by their ability to increase their dividend over an extended period of time: 5, 10 or 20 years. It is not required to only choose those companies with the longest dividend record as doing so will eliminate the diversification of industry and higher dividend yield. However, 35% of the portfolio consist of the highest quality stocks with dividend payouts of 10 years or more.
Rule #2 Over Diversification – The portfolio holdings should be diversified across 10 or more sectors / industries – currently the portfolio is spread across more than 15. As new potential stock candidates arise, preference should be given to those representing a new, unrepresented industry.
Some of the sectors (including sample holdings) represented in the portfolio are:
- Pharma: ABT
- Tabacco: MO
- Telecom: VZ, T, FTR
- Real Esate: O, PCL
- Clothing: CHKE
- Food: HNZ, CPB
- Auto: GPC
- Shipping: TNK, FRO
Rule #4 Cash pays 0%, stay invested – While I have sold off a few positions over the lifetime of the portfolio, the main intent remains to stay invested as Warren Buffet would say, “Forever”. We know that stocks will go up and they will go down, but by investing in a diversified mix of quality companies we will get paid (daily) either way.