The Divvy Dad Portfolio (DDP) was established in May 2018–prior to that time, almost all of my investments were in index funds with the exception being the following three stocks that have been owned for years: Apple, Abbott, and AbbVie (which are primarily responsible for my early dividend income reports).
Building a New Portfolio
After receiving a substantial lump sum payment, I was faced with a decision to either use those funds to pay off our mortgage or invest into the market. I’ve gone back and forth on the advantages / disadvantages of paying off a mortgage early, and ultimately opted to use the funds to build a new portfolio focused on dividend growth investing.
While it would have been nice to eliminate the mortgage early, and I may still funnel future bonus payments to the mortgage to be completely debt free sooner rather than later, I decided that it would be more beneficial right now to be invested as soon as possible given that time is the one commodity that cannot be replaced. Hopefully hindsight will demonstrate that to be a prudent decision.
Dividend Growth Portfolio
The DDP will continue to be a work in progress, but I feel it is a solid portfolio to start and allow reinvestment to begin creating my dividend snowball.
Here are the current holdings:
DGI Portfolio Guidelines
When I began researching dividend growth investing, most resources pointed to the Dividend Aristocrats and the CCC (Champions, Contenders, and Challengers) list that was being maintained by the late David Fish.
Using that list as the source of eligible stocks, I applied the following general guidelines to narrow down my selections:
- Price to earnings ratio below 20 (desire to be lower than overall market index P/E)
- Increasing dividend for minimum of 5-10 years
- Average annual dividend growth of 6+% over last 1, 3, 5, and 10 years
- Payout ratio less than 60-65%
- Dividend yield of 2.5% or more
- Beta below 1.0
It is important to note that the above are guidelines, and not black and white rules. For instance, Microsoft ($MSFT) has a yield below 2% however their dividend annual growth has been in excess of 10% over the last 3, 5, and 10 year time periods.
If you spend time in any of the DGI forums or groups, you will tend to see that a lot of people focus only on the dividend yield. While a high yield is certainly nice, you need to be sure that it is not so high that it is unsustainable and that you’re not sacrificing growth in the process.
When to Fold ‘Em
You may notice that the guidelines above do not mention anything about when to exit a position, and the rationale for that is because to be successful with dividend investing you really need to have a long-term time horizon.
Now, that does not mean you simply buy something and never look at it again–but generally I am planning to hold until the company decreases, freezes, or stops their dividend.
There may be other circumstances that dictate the liquidation of a position, however I expect that to be the exception rather than the norm. Any notion of trying to time the market and buy and sell to capture dips will not be part of my strategy, as I am smart enough to know that market timing is a fool’s errand.
Building the Dividend Snowball
With a long-term time horizon, my strategy is to reinvest the dividends and continue to add new money into the portfolio. For dividend reinvestment, I have opted to reinvest directly into the company paying the dividend rather than collecting the cash and directing where those funds go.
Being a long-time index fund investor, I generally like to keep things fairly simple and reinvesting into the paying company provides a level of simplicity that appeals to me.
I recognize that this strategy may leave some money on the table due to reinvesting when prices are high, however per my note earlier about market timing, I find that things tend to balance themselves out well enough for my taste.
Dividend Portfolio Goals
While I am getting a late start to dividend investing and have an early retirement target that is 10 years away, I recognize that this portfolio will not completely cover our living expenses in retirement.
However, as we are on track for my retirement target utilizing purely our tax-advantaged savings, my goal is to have the DDP supplement our living expenses and allow for a more conservative safe withdrawal rate. My stretch goal for 2028 is to have annual dividends of $15,000 or more. The success of reaching that goal will in large part be driven by how much we contribute on a monthly basis moving forward, and I’ll be sharing that journey here.
Your thoughts and feedback on my portfolio are certainly welcome, as true growth is achieved through continued learning and understanding of different perspectives.