My New Dividend Investment Portfolio

Early last month I learned that due to employer constraints I was going to be forced to alter  my beloved perpetual income machine, which was essentially a dividend investment account.  The point of the machine was to find undervalued (defined below) stocks which were part of the Dividend Aristocrat Index, a stock index which tracks those large cap businesses which increased their dividend payouts every year for twenty five years.

Why Did the Perpetual Income Machine Die?

As you may remember, I was forced to leave my old brokers. One of which was Sharebuilder which allowed me to buy 12 fractional stocks for $12/month; essentially my cost was $1 a trade as long as I did it on Tuesday evenings, which was fine with me. So I would buy 6 stocks twice a month investing approximately $300 a month into “the machine.”

Well my new online broker, Fidelity, does not have a similar deal and so it will cost me $8 a trade or a whopping $96 to follow the same schedule, and to boot, I can’t buy fractional shares.

Completely unacceptable…Something needed to be done…hence the birth of Evan’s Dividend Investing Portfolio (a/k/a Perpetual Income Machine 2.0).

What Will The Dividend Investment Portfolio Look Like?

Since I can’t purchase as many individual stocks as often as I was my plan of action going forward is to mix some ETFs with less stock purchases that are more concentrated. Fidelity offers 30 Free ETFs which I can buy commission free. Of these a few are equity income based (i.e. not bonds or fixed Income Based):

    • DVY – The investment seeks to replicate, net of expenses, the Dow Jones Select Dividend index…The index is comprised of 100 of the highest dividend-yielding securities (excluding real estate investment trusts) in the Dow Jones U.S. index.
    • IDV – The investment seeks to replicate, net of expenses, the Dow Jones EPAC Select Dividend index…The index consists of 100 of the highest dividend-yielding securities (excluding REITs) in the Dow Jones World Developed-Ex. U.S. index. The fund is non-diversified.
    • IYR – The investment seeks to replicate, net of expenses, the Dow Jones U.S. Real Estate index…The index measures the performance of the real estate sector of the U.S. equity market. It includes companies in the following industries: real estate holding and development and real estate investment trusts. The fund is non-diversified.

As of writing this post each ETF trades between $35 and $65 per share, so my goal will to buy one share of each fund per month without dividend reinvestments.  This will equate to about $150 a month.

All dividends and the remaining $150 will follow the perpetual income machine of stock picking with the following requirements:

  1. The stock has to actually be on the Aristocrat List
  2. The stock has to have a Price to Earning that is lower than or equal to their industry average
  3. Their Operating Margin has to be in line with the particular stock’s industry average
  4. Dividend Yield should be between 2% and 5%
  5. Price to Book Value Should be Reasonable

If or when I move from cash accumulation mode I will increase the amount contributed accordingly.

26 Responses to My New Dividend Investment Portfolio

  1. I’m enjoying reading about your perpetual income machine, and it seems like you’ve got a great plan going forward. I’d like to get my own set up, and I’m hoping to do more work on it next year when I get a bit more income.

    • Why not start it today? Like right now? decide what you can put into it…call it $50 call it $100 a month.

  2. That seems to be a pretty good screening method. I might adapt it for my own use. I started my dividend portfolio with just dividend aristocrats but soon expanded it to allow whatever dividend stocks I felt like purchasing. It has worked fairly well so far.

  3. Sorry to hear about the lost of your perpetual income machine. Way to bounce back and create a new plan. Calm and logical. Going in, do you have an expected ROI? How often will you reassess or rebalance? Good luck with it!

    • No expected ROI – my goal is an eventual stream of income I can turn on. So if I stick with this plan for years to come (with reinvestments)…one day I want to be able to turn off reinvestments and have a passive stream of income. This is also the reason I am doing this outside a qualified retirement account…I want this stream to be turned on WAY before 59.5 years old.

      Since I am buying individual stocks every month I guess I will have to reassess the dividend aristocrats once a month before I purchase the shares.

  4. That really blows about losing Sharebuilder. I just opened an account with them over the holiday weekend when they were offering a $76 signup bonus. It’s something I’ve meant to do for a long time and I suddenly realized it was time to start “paying myself first”.

    My first automatic investment starts on Tuesday, just 4 stocks so far and they are subject to change with more research.

    • I couldn’t understand why they (their parent company ING) didn’t offer a short term bump in CDs to capture some more long(er) terms savings.

      What stocks are you buying? do you have a post on it?

      • Not yet, but I’m going to write something up in the next couple days.

        I chose MMM, JNJ, GE, and KO for now. All Aristocrats except for GE…just something about them I like. I’m going to reevaluate regularly and switch stocks as needed but I’m planning on holding any shares I acquire long term rather than actively trading. In any event, I’m starting on a very small scale…I think index funds are a better bet overall but I kind of enjoy the process of investing in individual companies as well.

  5. Too bad your plan had to change, but it sounds like you have adapted quite nicely. I don’t quite understand why your employment determines which broker to use in a non retirement account.

    • If you check out the other post it kind of gives an answer, but it is because I am a registered rep for an investment company and they can decide where I can invest.

  6. So I just bookmarked your site. I recently became really interested and wanted to take more of a ‘hands on” approach to my investments and this definitely shed some light on a few things I was curious about. Now I just have to find some Canadian alternatives.

  7. I think you should have titled this post, “The Day the Perpetual Income Machine Died.”

    Seriously, this is great info. I’d like to be a dividend investor someday so I’m trying to learn all I can.

    • Hahahah that would have been a MUCH better title. I think I have a couple zeroes away from being a “dividend investor.” Just a guy trying to start a portfolio…slowly

  8. ETFs are nice. I wish we could get more here in Canada for no trade fees, but we can’t, unless we have REALLY big portfolios. I need to save up a chunk of money then buy a bunch to make paying the nominal $4.95 fee less painful.

  9. I like using DRIPS for dividend investing though managing those can be a challenge but that way it is just pure passive investing.

    • DRIPs are a great starter, but have no real benefit to an online broker that reinvest dividends for free and automatically

  10. Evan, what’s your take on high yield bonds as a source of dividends? You’ve posted about ETFs like JNK “jumping the track”, but high yield mutual funds are much more consistent in following the index, and work exceptionally well in a tactical asset allocation.

    • Bond funds kind of scare me right now. Interest rates are going to go up, maybe it is 2 years from now, maybe it is 6 but they will go up and then the NAV must go down on the mutual fund.

      That being said, I don’t have enough invested to buy individual bonds as not to worry about that aspect.

  11. That’s a well-reasoned bounceback strategy. It’s too bad you can’t reinvest dividends though, you lose out on all that compounding.

    • I can reinvest dividends for free…and will on those individual stocks just not on the ETFs.

      The money isn’t coming out of the account just being used elsewhere.

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