How to: Start a life-changing dividend growth portfolio
I read something that absolutely blew me away yesterday. You ready for this? I wasn’t. Are you sitting down? OK, here it is: more than half of all Americans have absolutely nothing, $0.00, invested in the stock market.
Zero, zip, zilch.
Surprising, huh. Half a year ago I wouldn’t have thought twice about it. I was one of those people. Now, though, after dipping my toes into the world of dividend growth investing, I’m floored. It’s just so damn easy to get started, and so potentially life-changing, that every man, woman and child should jump in. Trust me, the water’s fine.
I wanted to get started for years, but intimidation held me back. I was afraid of something I didn’t understand, which is the exact opposite of the fatherly advice I give my curious yet cautious 5-year-old son.
I realized I needed to start taking my own advice … so I did it. I read up on investing and got to work. It’s not important how you start, there are plenty of ways, what’s important is that you start. Still, I figured it might be helpful if I gave a step-by step guide to getting it done, based on my experiences, of course.
So, without any more context-building blabbering, here it is:
Get a job.
Easy, right? Most of you probably already have one. It’s an obvious step, buat an important one; you have to make money to be able to invest money. You don’t have to have a ton of savings to pull from, or any savings, really, just a way to make some money and the ability to invest some of it after paying the bills and stocking the fridge. You don’t need to make a ton of money, either, as companies like Robinhood, which I’ve used to get my portfolio off the ground, charge you as much as most people have in the market: $0.00. Trades are free, which is invaluable for young investors trying to figure things out for themselves.
Open an account.
Duh? Gotta have a way to buy and sell stocks to, well, buy and sell stocks, which is what investing is. I focus on the buying part more than the selling as I plan on trimming shares from my portfolio very infrequently. Anyway, you have to have an investing account to get started, and you can literally open one in a matter of minutes. Click the open account tab, all the brokerages have one – again, I suggest Robinhood – fill out the info, link a bank account and fund the son of a gun.
Do your homework before you buy anything. I played around with my account for a bit by throwing a bunch of companies on my watchlist and, as the name suggests, watching what happened with each one. Watching a stock surge after announcing its earnings or slip on account of some less-than-positive news is a lot easier for the less seasoned of us to stomach when we don’t have any skin in the game. Read as many articles as you can about the companies on your list. Find out how they make money, what they do with the money and how they use it to grow their business. You need the business to grow if you expect it to help you grow your portfolio.
Build your portfolio.
Up to this point, everything’s been commonsensical. So much so this step-by-step guide has probably been hard for some of you to read. This, though, is where it gets a little subjective. Similar to the way everyone has their own way to make mac and cheese, everyone has a way to build a portfolio. There isn’t one right way, but an absolute boatload. You have to figure out what’s right for your personal situation.
If you want your portfolio to explode, dividend-paying stocks might not be the best route. That said, non-dividend payers and potentially game-changing companies like Netflix, Amazon and Chipotle, while capable of sending your portfolio to the stratosphere, can experience large swings in share price. They can send you on a roller coaster ride you might not be ready for … especially if said company hasn’t changed the game just yet. You have to be prepared to lose big amounts of money if you want to see overnight success.
I went the other route, opting for the slow burn dividend growth stocks are known for. They still have the peaks and valleys, but they’re much more predictable. If there is such a thing in the market as predictability, you’ll find it in dividend growth stocks via their regular dividend payments.
Once I figured out the direction I wanted to head, and why, I started the valuation process, which doesn’t have to be overly complicatied. For starters, I looked at when the dividends were paid, and how often. Some companies pay dividends monthly, some quarterly, some twice a year and some just once. I wanted companies that paid four times a year with varying schedules to ensure I’d get some sort of payment every month. From there, I just looked for companies that were a good value (indicated by the P/E ratio, among other things), had good payouts (dividend yield) and a good history of increasing those payouts. These are all things you can Google or ask Alexa to tell ya about.
Look at schedules, too, and pick a handful that pay in Jan/April/July/Oct, then a few that pay in Feb/May/Aug/Nov and then a few more that pay in March/June/Sept/Dec.
Get it? Got it? Goooood.
Once you have that all nailed down, pick one from each of the three sechedules, which are usually pretty consistent, and buy them. Even just one of each is fine. That’s what I did.
A good example would be Kimberly-Clark (KMB), AT&T (T) and Johnson & Johnson (JNJ). All three have been paying increasing dividends for at least 32 years. They have solid yields and one pays quarterly starting in January, one pays quarterly starting in February and the other pays quarterly starting in March.
Now just rinse and repeat. Your portfolio will be pumping out cash in no time. It won’t be life-changing amounts of money at first, but that’s the dream. That’s where we all want to get and, obviously, you can’t get there without getting started in the first place. I call my journey my march toward a million – a trek I realized I’d never make without taking the first step. Like a baby learning to walk, the first steps are going to look and feel a little awkward, but you’ll be off and running in no time.
Follow my journey here at marchtowardamillion.com. Like my page on Facebook (March toward $1,000,000) and follow me on Twitter @marchtoward1mil. After that, get started (if you haven’t already) and let me know how to follow yours.