dividend investing

$25K a Year Dividend Investing Portfolio (7 Advantages)

In this article we share our top 10-20 holdings of my dividendĀ investingĀ income portfolio that produces approximately $25k a year in dividend income. We also share 7 advantages of investing this way. We’ve also updated this post to include a live view to the dividend portfolio in Google Sheets, and a TradingView watchlist to download.

dividend investing
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A Conservative Approach

The strategy laid out here has a lot to do with our personal tolerance for risk. Knowing your personal risk tolerance is critical to investing. Generally speaking, buying shares of strong dividend paying companies is a prudent and conservative way to invest. It does not mean risk free, but for me personally it hits that sweet spot of taking some risk, but also mitigating extreme downside.

Top 12 Holdings

Here are the top 15 holdings (in order of greatest weight in the portfolio) and dividend yield. Dividend yield that is high does not always mean better. Dividend investors are typically seeking that sweet spot of the highest yield that is safe and sustainable.

dividend investing
Snapshot of Dividend Portfolio on 3/10/23

Live View of Dividend Stocks from Google Finance

TradingView Watchlist: https://www.tradingview.com/watchlists/106647896/

One: Steady Income

Steady Income: One of the primary advantages of dividend investing is that it provides a steady stream of income. Dividend stocks pay out a portion of their earnings to shareholders, which means that investors can receive a regular income even if the stock price remains stagnant.

Two: Compounding

Compounding Returns: Dividend reinvestment plans (DRIPs) allow investors to reinvest their dividends automatically back into the company’s stock. Over time, this can result in significant compounding returns, as the investor earns a return on their original investment plus the reinvested dividends.

Three: Volatility

Lower Volatility: Dividend-paying stocks tend to be less volatile than non-dividend-paying stocks. This is because companies that pay dividends are typically more established and have a track record of stable earnings, which can help to smooth out the stock’s price movements.

Four: Capital Appreciation

Potential for Capital Appreciation: While dividend stocks may not always experience significant capital appreciation, they do have the potential to increase in value over time. In fact, some dividend-paying stocks have outperformed the broader market over long periods of time.

Five: Tax Advantages

Tax Advantages: In some cases, dividends can be taxed at a lower rate than other types of investment income. For example, qualified dividends are subject to a lower tax rate than non-qualified dividends or ordinary income. This can make dividend investing a more tax-efficient way to generate income.

Six: Instant Passive Income Machine

Building passive income machines from assets can be challenging and takes years of up front sweat labor. Take for example opening up a business or managing real estate. Both of course can be great sources of passive income, but it may take years to get them to that point. Some may even argue, depending on the business or property, that these are never truly “passive”.

This is not the case with dividend stocks. The minute they are acquired, they are mini passive income machines. Build enough of them and you could generate a nice income each year just for owning the stock.

Seven: Strong Companies and Sleeping at Night

The final advantage of investing this way is that companies and funds that pay a consistent dividend tend to be financially strong. Although Berkshire does not pay a dividend itself, Warren Buffett sure loves healthy strong companies that pay his holding company a dividend.

This is not to say that every company that pays a dividend is healthy. You must do your research and due dilligence. I prefer dividend aristocrats,

These are companies that have a decades long track record of paying dividends in all kinds of economic environments.

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