Update – I updated this article for 2014. See my updated Dividend Portfolio there.
In my last post, I detailed our April cash flow and we had to dip into our savings for $253. I have taken 3 months off temporarily so this is not a permanent situation. We will get back to saving money again once I go back to work. However, we need to increase our income if I want to meet my goal – to retire by 40. One of the solutions is to create a dividend/yield portfolio. In this portfolio, I will concentrate on buying solid equity that has good payout.
To start with, I’ll concentrate on large cap companies that payout at least 3% dividend. Once I have a few stocks, then I plan to diversify into REIT, Corporate, and municipal bonds. My goal is to build up this account to generate around $300/month. This is a huge task once you crank the number. $300/month = $3,600/year and that mean I need more than $100,000 at 3.6% yield to generate this amount of income.
I opened a new brokerage account and funded it with $5,000. This is a small amount to begin with, but I have to start somewhere. After a little research, I purchased 100 shares of AT&T to start the party.
AT&T is the biggest telecommunications company in the world with a market capitalization of 185 billion dollars. The current dividend yield is 5.5% and that’s almost twice of my 3% threshold.
Their Price/Earning ratio is 9.23. This is the one of the lowest PE of the telecommunication companies. PE is important because it shows the relationship between the stock price and the earning. For this portfolio, we want the PE to be lower than average of their sector. A low PE ration can denote value and usually means investors believe this company will not be able to grow much. Verizon, the next largest US telecom company, has a PE of 30.24 and similar yield. AT&T being the bigger company probably will not be able to grow as fast as Verizon, but we are looking for income and value here and not growth. If the stock price stays stable, I would be happy to bag the 5.5% yield and call it good.
AT&T also has a pretty low Beta. This is also good because I want stability in this portfolio. A Beta of 1 shows that the stock tracks the larger market in % gain and loss. So with the Beta of 0.66, AT&T will gain less than the SP500 market, but it will also be more stable when the market goes down.
Whenever I have extra money, I’ll transfer it to this account first to build it up. If I sell some stocks in my regular account, I’ll also move the money to this portfolio. I have a few other stocks that fit my criteria and I’ll probably just transfer those over to make it simpler to track. The goal is to generate $300 per month in a few years with minimal maintenance. I’ll revisit this portfolio periodically as I add more investments.
Current value: $5,146
Year to date Yield: 0 at this time.
What do you think about my Dividend Portfolio plan? Any suggestions on what stock/bond I should buy?
Disclaimer: This is not a recommendation. My stock picking track record isn’t great so you need to do your own research. This post will help us keep track of the gains and dividends to see if they meet my passive income goal. If you need help with financial planning, consider signing up with Personal Capital. Personal Capital will help you keep track of all your investments in one place and can hook you up with a personal financial adviser as well.
Disclosure: If you sign up with Personal Capital, we may receive a referral fee depending on the size of your portfolio.