Building a dividend portfolio

[jIMOh]

Has anyone here built a dividend portfolio in a taxable account?

If so, how have you done it? Individual stocks? ETFs? MF?

If you had to give advice to someone which has a 401/Roth and has a moderate amount to invest, and wants a reasonable income stream from dividends, what would you suggest?

Details- age 34, have 140k saved already in tax advantaged accounts. Most indications are that the 140k currently saved will be enough around age 65.

The next step is to build up savings in taxable accounts which can be used for ER.

I have around $600-1200/year I can invest... this is not money every month, it is money which would be available only in Nov/Dec after we had a "good year" where no emergencies happened and emergency fund did not need to be "replaced".

25% of income tax returns would also be used to supplement this $1200.

My initial idea was to buy $120 of 10 DOW stocks (using small dogs strategy), until portfolio was around 10k, then after this diversify into some REIT/mid/small cap issues which pay a dividend.

mortgage is 30 yr fixed in yr 1, 5.75% with a second in yr 1 at 7.41%.

thought is 600/yr to investments yr 1-15, 1200 to pay off 2nd mortgage
next thought is 1800/yr to invesments yr 16-30 to investments.

if we move it's because someone took me out of house horizontal (gourney or stretcher).

[renferme]

Quote:

Originally Posted by jIMOh Has anyone here built a dividend portfolio in a taxable account? I have around $600-1200/year I can invest... this is not money every month, it is money which would be available only in Nov/Dec after we had a "good year" where no emergencies happened and emergency fund did not need to be "replaced". 25% of income tax returns would also be used to supplement this $1200.

$1200 per year (on a good year) is too small to worry too much about where it's going. Pick a good mutual fund and put it there.

.

[jIMOh]

Quote:

Originally Posted by bennevis $1200 per year (on a good year) is too small to worry too much about where it's going. Pick a good mutual fund and put it there. .

With raises this becomes more, and I'd like to think any amount makes a difference. Once I know my 401k has enough, I will drop contribution enough to find another 2600/yr for this account as well. 1200/yr @9% growth/yr is > 150k after 20 years. The goal is 500k @3% generating 15k of income each year. I am sure once I start I can find other ways to fund this.

For example, I train soccer teams in evening, and if I choose to invest 3k per year from this in addition to what is already marked, this becomes 470k after 30 years. 3k is half years pay for this... so it's easy for me to find ways to add to this account.

[Hamlet]

Here are my individual stock picks for a taxable dividend portfolio:

USB
MO
JNJ
MMM
PFE

Or just buy a dividend ETF like DVY

[renferme]

Quote:

Originally Posted by jIMOh With raises this becomes more, and I'd like to think any amount makes a difference. Once I know my 401k has enough, I will drop contribution enough to find another 2600/yr for this account as well. 1200/yr @9% growth/yr is > 150k after 20 years. The goal is 500k @3% generating 15k of income each year. I am sure once I start I can find other ways to fund this. For example, I train soccer teams in evening, and if I choose to invest 3k per year from this in addition to what is already marked, this becomes 470k after 30 years. 3k is half years pay for this... so it's easy for me to find ways to add to this account.

I would take that money if I were you and put it in Vanguard Wellington.

[Peaceful_Warrior]

For the portfolio you could identify the top 50 dividend performers (possibly based on companies who have increased dividends annually for the last 10 years), and then purchase shares in all of them.

Using FolioFN ($199 annual fee), you can purchase equal dollar amounts of each of those companies and purchase/sell several times per month with no additional costs (which is helpful to keep from paying brokerage fees).

If I were to build a post-tax dividend portfolio, I would do it that way and re-evaluate annually based on which companies are still in the top performers, and which newcomers there may be.

[Anansi]

You seem a little young for what is a fairly conservative investing strategy, but I happen to think dividends are a Good Thing, and don't see anything to object to in your general approach.

As to the details, I think you need to do some more research and there are a number of books on the subject you can use to refine your strategy. One thing to consider in particualr is a company's history of dividend growth not just their current dividend. At a minimum, I would not put everything into just US stocks. Many foreign stocks pay better and putting some money outside the US also provides some beneficial diverification.

With the funds you have now, the transaction charges on 10 individual stocks when you are investing only $1200 would be too high (unless you are with someone like Wellstrade who doesn't charge anything to trade). For now, you are probably better off with an ETF - possibly one US and one foreign - or similar mutual funds. You can find lots of specific recommendation by searching this site.

[Olav23]

Also, one thing to keep in mind:

In 2011, dividend income (other than capital gain distributions from mutual funds) is taxed as ordinary income at the taxpayer's highest marginal tax rate.

That is unless the current provisions from the Jobs and Growth Tax Relief Reconciliation Act of 2003 are renewed.

[JPatrick]

If you want to hold div paying individual stocks in smaller quantities, I'd go with a handful of drip stocks. One example that I use: DUK...great company, great dividend and your purchases are 100% free of commissions, plus they will hold your stock for you. I've got Duke on my web bill program so every month I take about 15 seconds to transfer $100 bucks or so to the Duke DRIP. It's a no brainer for a small part of your program.

[wildcat]

Hey JPatrick! Long time no see. What have you been up to? How is everything in Mizzourah?

[clifp]

Given the relatively small amount each year especially compared to your sizable 401K (nice work for a 34 year old), I'd go one of two routes.

Lowest risk, Find a dividend growth fund like the Vanguard Dividend Appreciation Index Fund VDAIX or an ETF like the Wisdom Tree Total Dividend DTD and invest in them.
Alternatively buy one or two new dividend stocks a year reinvest the dividends, and in 10 years you will have a reasonably diversified portfolio. If you encounter a dog or two in your first few year you'll have only lost a percent or two of your portfolio, and you can reassess desire for picking individual stocks.

[modhatter]

Here is a link to an investing forumn on Income and Dividend Investing on the Morningstar web site. You can learn a lot about different Dividend stocks and funds there.

http://socialize.morningstar.com/New...mId=F100000098

[JPatrick]

Quote:

Originally Posted by wildcat Hey JPatrick! Long time no see. What have you been up to? How is everything in Mizzourah?

Life in small town Mizzourah is pretty dang good. I can only name one thing I really, really miss about Big City --the airport. Man, I miss a major airport. Hope to visit your Bowling Green Corvette factory soon. Don't be surprised if I also attempt a kidnapping of the A & M now Wildcat basketball coach.
Hope you are doing good dude.. You've been a stranger also

[jIMOh]

Quote:

Originally Posted by Anansi You seem a little young for what is a fairly conservative investing strategy, but I happen to think dividends are a Good Thing, and don't see anything to object to in your general approach. As to the details, I think you need to do some more research and there are a number of books on the subject you can use to refine your strategy. One thing to consider in particualr is a company's history of dividend growth not just their current dividend. At a minimum, I would not put everything into just US stocks. Many foreign stocks pay better and putting some money outside the US also provides some beneficial diverification. With the funds you have now, the transaction charges on 10 individual stocks when you are investing only $1200 would be too high (unless you are with someone like Wellstrade who doesn't charge anything to trade). For now, you are probably better off with an ETF - possibly one US and one foreign - or similar mutual funds. You can find lots of specific recommendation by searching this site.

Why does this seam conservative? My Roth and 401k are in 100% equity, so I think something conservative on the equity side makes sense.

I could use Sharebuilder and buy unlimited stocks for $12/month.

[Anansi]

Quote:

Originally Posted by jIMOh Why does this seam conservative? My Roth and 401k are in 100% equity, so I think something conservative on the equity side makes sense. I could use Sharebuilder and buy unlimited stocks for $12/month.

It seems conservative because dividend paying stocks are oten used to generate spendable money, somewhat as a bond alternative, especially in a taxable account and (some, but not all) are not long term growth stocks. But I didn't say there was anything wrong with being conservative, just that that's what you would be doing. Most of what I own is very similar, so I wasn't being critical.

Since you plan on holding these positions for a long time, you would be better off with this sort of stuff in your 401(k) if there is any option there that comes close. And if you pay Sharebuilders $144 / year in commissions to buy $1200 worth of stock, you are hardly getting a good deal. Anything with a low ER would almost certainly do better than that.

[jIMOh]

Quote:

Originally Posted by Anansi It seems conservative because dividend paying stocks are oten used to generate spendable money, somewhat as a bond alternative, especially in a taxable account and (some, but not all) are not long term growth stocks. But I didn't say there was anything wrong with being conservative, just that that's what you would be doing. Most of what I own is very similar, so I wasn't being critical. Since you plan on holding these positions for a long time, you would be better off with this sort of stuff in your 401(k) if there is any option there that comes close. And if you pay Sharebuilders $144 / year in commissions to buy $1200 worth of stock, you are hardly getting a good deal. Anything with a low ER would almost certainly do better than that.

Dividend payouts of S&P 500 tend to grow faster than inflation and get taxed favorably if in a taxable account. Dividends in a 401k would be withdrawn at ordinary income tax rates. Bond yields do not keep up with inflation, so the plan is to have around 25% of income in dividends, 25% in TIPs, so 50% of income sources are indexed to inflation. It's a plan/idea... I am looking into it now.

The $12/month I would turn on for a purchase in December of $1200, then turn off January-November until money accumulated for next purchase the following December.

[Anansi]

I am assuming your time horizon is fairly long, although I don't think you said exactly how long. Dividends get taxed very favorably now, but that wasn't the case until recently and may not be the case again soon and although dividends are taxed fully when withdrawn from a 401(k), until then they are compounding tax free. You have to do the math for your situation, but compounding is very powerful.

I am not sure if it is really germane, but while the dividend rate of the S&P has gone up recently, the trend was actually down for a long time. Things change.

And some bonds do keep up with inflation. Just check out all the posts here about ISM and OSM. That will keep you busy for a week.

[Zathras]

I would strongly recomend reinvesting the dividends during your earning years as that will help you out a lot over a long time horizon.

[DangerMouse]

I built my dividend portfolio using DRIPS. In the past I went through Transfer Agents, but now that WellsTrade is allowing 100 free trades a year, I use them as my Transfer Agent.

[webbach]

Has anyone here taken a good look at Wisdom Tree ETFs? They are not yet widely traded, so there may be exaggerated bid/ask spreads for now, but the yields are high. The expense ratios are not bad, either. Any ideas?

Webby