This is a guest post by Mike, aka The Dividend Guy. He authors Dividend Stocks Rock. He is a passionate investor.since 2010 and manages portfolios at
When we look at the market over the past 3 years, we see only good news. Basically, my 9 year old son would have probably been able to make money off the stock market like the rest of us. But now that the easy money is gone, how are you still going to find good investments in such bullish market?
My US dividend stock picks have done better than than the Vanguard Dividend Appreciation ETF (VIG). Why? Simply because I keep following simple but effective rules. Here’s more about my investing process.
#1 Start From My Investment Strategy
It’s not because the market is up or down by 30% that I must scrap my investing theory in the first place and start over from scratch. A few years ago, I made a list of financial metrics companies I buy must follow. Now that the market is up for several years in a row, I’ve modified them to reflect the new reality. So here are the basic metrics I use when starting my hunt for a new stock:
Dividend payout ratio
3yr/5yr Dividend growth
3yr/5yr EPS growth
3yr/5yr Sales growth
My minimum requirements are defined to show strong companies that have everything under their belt to continue paying a healthy dividend. My thinking is to identify stocks that are able to increase their dividend year after year. If they do that, it means that everything else is going well. After all, no matter how hard a company wishes to increase its dividend, if there is no money in the bank account, it just can’t write those checks!
Once I’ve made a list of stocks from my screener, I start looking at each of them to see if they show steady trend patterns or hectic numbers from one year to another. My graphs look pretty much like what DGI shows on this blog.
#2 Allow Myself to Cheat
Who said cheating wasn’t permitted? The key is to cheat only on one or two metrics – not to completely deviate from your investing process. Remember, when cheating, you take higher risk… but with higher risks, can come higher rewards! This is why I separate my holdings into two segments: my core holdings (where my “premium” stocks are) and my dividend growth additions.
A part of my portfolio is the core holdings. These stocks would qualify under a regular dividend investing strategy or “buy & hold” if you prefer. When there is an opportunity, I invest 5-10% of my portfolio in a company that has great upside potential over a relatively short period of time. I usually pick them from the list I’ve previously mentioned.
Once my core portfolio is built, I look to add more risk (cheat) to my portfolio. This is why I’ve separated my core portfolio from my dividend growth stock additions. These picks are meant to provide greater results within a short period of time. They don’t fit my “premium” stock list and shouldn’t. These companies are picked on a potential scenario that might happen.
#3 Make Sure Your Core Portfolio is Solid Before Taking Gambles
I obviously didn’t start adding several “dividend growth additions” prior to building a strong core portfolio. My core is made up of consumers & aristocrats that I plan to hold forever (or until they fail on me!). This includes companies such as KO, JNJ, WMT, MCD, CVX. Once I felt my core was strong enough to go through any storm, I started to “cheat” and add riskier stocks such as STX (which I sold) and AAPL (currently up 45% in my portfolio).
I don’t intend of holding these stocks forever. In fact, I usually ride them for less than two years before I cash out my profit through a stop sell. Since these stocks show higher potential, but higher risk, they are usually more volatile as well. This is why once I reach a good level of profit and feel the metrics are slowing down, I set a stop sell and assure a good profit margin on my trade.
So far, this has helped me build a very powerful portfolio offering both regular & increasing dividend payouts while also showing strong capital growth.
This is a simple but effective way to manage a portfolio and it works! All you need is an investment strategy and the discipline to apply it no matter what. If you are looking for a longer explanation on how I manage my portfolio, you can read about my dividend growth model.
Are You Looking for Help Managing Your Portfolio?
If you wish to manage your own portfolio but lack time or knowledge to do it, I’ve built a tool called Dividend Stocks Rock to help you. This site offers everything you need to become a successful investor:
A bi-weekly investing newsletter;
8 different stock lists to help you pick from the best amongst the best;
12 live portfolios covering small to $500K+ portfolio sizes
An exclusive Stock Ranking system to help you buy and sell at the right time
I continuously add more features to Dividend Stocks Rock. Strong from my first 10 portfolios (8 of 10 beating the market), I’ve created the $500K+ portfolio. I’m currently working on adding ETF lists to provide you with a broader range of investment solutions. You can even try the service for 30 days and cancel without any fees, how about that? If you are interested, check out the Dividend Stocks Rock service.
If you have any questions on how I manage my portfolios or about my service, please leave a comment on this blog and I’ll be more than happy to answer all your questions.
Disclaimer: The opinions and the strategies of the author are not intended to ever be a recommendation to buy or sell a security. The strategy the author uses has worked for him and it is for you to decide if it could benefit your financial future. Please remember to do your own research and know your risk tolerance.
Disclosure: This article includes affiliate links. If you sign up for any products or services through them, I may receive a payment as a result.