Every Portfolio Needs a Foundation

“I love the Dividend Income Investing philosophy which is finding great stocks paying higher than normal yields”

As many of you know I am all about High Yield stocks. I love the Dividend Income Investing philosophy which is finding great stocks paying higher than normal yields. But did you know you can apply this philosophy to the Dividend stalwarts commonly call the “The Dividend Aristocrats” or “The Dividend Champions” among many other creative names.

These Aristocrats or Champion stocks are Large Cap stocks that have a long history of paying and / or raising dividends usually for periods exceeding 25 years. Here’s the thing though, occasionally even these stocks find themselves “Out of Favor” for one reason or another. When they do this presents the perfect opportunity for Dividend Income Investors to pick them up at bargain prices and of course as we all know when a stocks price falls its yield increases. So as a result we may be able to find these stocks that normally pay a yield of 4% at maybe 5.5%. This increase in the yield of one and a  half percent can have a huge impact on our returns over a number of years.

How do I play this? Well some of my riskier stocks I do not DRIP the Dividends but let them accumulate into cash. Its this accumulation of cash in my portfolios that I hold back looking for bargains and opportunities. We never know when they will present themselves but when I see one of these “Blue Chip” stocks at bargain prices I add it to my portfolio and use them to build a solid foundation for my portfolio. In this manner I am always adding to the stability of my portfolios without compromising on the High Income I demand.

The point I am trying to convey is that as Dividend Income Investors we don’t have to give up on the more traditional Stocks in order to achieve high yield and high income. Yes, we can have our cake and eat it too!

So what would I consider to be great “Foundation Stocks”?  The list is too large to publish here but you might want to consider some of these:

Proctor & Gamble (PG), AT&T (T), Verizon (VZ), 3-M (MMM), Coca Cola (KO), Pepsi Cola (PEP), Doctor Pepper Snapple (DPS), Pfizer (PFE), General Electric (GE), Johnson and Johnson (JNJ), Honeywell (HON), Altria (MO), Phillip Morris (PM), Duke Energy (DUK), Southern Company (SO), Realty Income (O), Boeing (BA), …………………….. I think you get the point !

Once you get your foundation of best of breed quality stocks established then you can start building on it. This when you have to build a little knowledge and slowly venture into the riskier, but more rewarding stocks that will produce higher income for you. One of my favorite places to look for quality higher yielding stocks is the CCC List or David Fish’s Champions, Contenders and Challenger list (Read : 113 Dividend Increases Expected )  which list dozens of stocks that have raised their dividends for 5 years in a row or more, many for more than 25 years in a row. While it doesn’t guarantee the safety of a stock it is sure a good indication they are serious about maintaining  their dividend payout.

So get started, lay that foundation of quality stocks and prepare to start building on it.


What do you think? Do you have a similar philosophy you would like to share? Please comment below.


Why Pay ETF fees – Build Your Own !

“Why would you pay someone a good chunk of your Investments to do what is so simple?”

I personally maintain between 75 and 100 stocks in my portfolio(s). Now I know many of you will argue that is way too many stocks to manage but that is not what this article is about so let us save that argument for another article ? Okay, now that we have that out of the way let’s get to the point.

One of my pet peeves is paying others to do things for me I can easily do myself. I know in some cases it makes sense to pay others to do jobs for you. For instance, I could put a new roof on my house, I’ve done it before and I know I would save money and probably do a better job than many roofing companies would. But, I am getting older, I am less agile and recently have developed a phobia of heights. In addition my time has become more valuable to me and I am in no condition to risk injuries that would only accelerate my natural aging conditions so in this case I choose to hire professionals to do the roof for me. It makes sense on a practical and a financial level. But that is not always the case and when it comes to my personal investments  well that is where I draw the line. I do it myself  and so can you!

That brings me to the do-it-yourself ETFs. Why would you pay someone a good chunk of your Investments to do what is so simple? It seems that the Financial community tries to make things sound very complicated to scare off individuals from doing it for themselves. I am not sure I am correct in my thinking but it is something that sure seems intuitively obvious to me. Whether I am correct in my thinking or not the fact is it is very easily for you to build your own portfolios of stocks and cut out the middle men fee collectors. This has become even more easily accomplished in recent years thanks to the internet and online brokerage accounts. For myself, it became very apparent during the 2008/2009 financial collapse that my broker was not working for me but for himself. He had steered me into a basket of mutual funds that paid him the best commissions and his 1 % yearly fee continued regardless if I made money or lost money. In other words the system was rigged to ensure his and the mutual funds commissions continued to flow positive regardless of what was happening to my accounts. In addition many have withdrawal fees to discourage you from daring to sell your investments.  At this point I had had enough! I was tired of seeing him with his $200 shirts and his shinny new Mercedes leeching off of me and my hard earned money, so I decided I would start managing my own investments.

I moved my money into Charles Schwab online accounts. It was a bit scary but as I quickly discovered not nearly as scary as watching my money transferred into the pockets of others.  My first investments were in all big cap, well known Blue Chip companies. Since many of these names had been caught up in the down draft of the collapse it was not only a smart move but as it turned out to be a very rewarding move as these companies rebounded rather quickly being the largest and most trusted names. Some were Bristol Myers Squibb, Johnson and Johnson, General Mills, Proctor and Gamble, Coca Cola, At&T, Phillip Morris, etc……….. All names of companies that have been around for a very long time, have products or services that almost everyone uses and recognizes. And it makes sense right? Think about it – It was scary times but  my reasoning was that if all these companies went bankrupt, well we would have more to worry about than our investments because it would have meant a complete collapse in our society. It turns out I did the right thing as my investments not only grew but far exceeded the value of my original investments. And they grew this time with the added value of not having to share with others.

I have evolved as an investor over the years but it is not as difficult as most think to build your own ETF. All you have to do is identify your goals. The majority of people choose a “low cost” S&P 500 Index fund. Now I know even for me it is almost impossible to buy a sufficient quantity of stocks to equal all 500 stocks so what I recommend (as a Dividend Income Investor) is to invest in the highest yielding stocks of the S&P 500. Then buy as many of those stocks that you can afford in equal weighted amounts. So as an example if you have $100,000 to invest you might choose to invest $4,000 in twenty five highest yielding stocks in the S&P 500, or another method would be to see what your favorite ETF has listed as it top 25 stocks then purchase those stocks. You can do the same for almost any index, or sector you choose to invest in. This way you have built your own mini ETF that does not include any fees from Brokers or Funds. You don’t have to go with say the top 25 stocks that are highest yielding either – I know sometimes I don’t have faith in a particular company or there are certain sectors I avoid altogether in my investments ( A current example is retail stocks, it a sector that is in transition right now and I do not trust it). You make the rules. And yes, as always, you will make mistakes. I’ve got  news for you – the people that put together the Mutual funds or ETFs they make their share of mistakes also. But unlike them it is much easier once you have identified the mistake to correct it. You simply hit the sell button in your account and invest the money into another stock that you have identified as more promising.

I know this might sound complicated to some but it is not. It takes very little time to put together and manage so even those with full time jobs can easily do it whether you are an office worker or a busy CEO I am 100% sure you will have the time. And as a bonus, there is nothing more rewarding than accomplishing work for yourself. I also believe this first crucial step will lead you to even more rewarding accomplishments in your financial life like becoming a full time Dividend Income Investor and finding out how simple and rewarding life can be.

Your thoughts and comments are always welcome. Please share them with us below.