My Dividend Builder strategy is now a year old and I am eager to share my results and a little of what I have learned. You can read about the beginnings of this strategy in my post The Birth of Dividend Builder – A New Strategy.
The Dividend Builder strategy is really quite simple, and ultimately, it is just me mimicking what successful investors have been doing since the start of the stock market. I buy and hold healthy dividend paying companies and sell a portion when there is opportunity to capture decent profit. The points below break my strategy down a little further:
- Consider companies that consistently pay dividends and preferably those that have a history of raising their dividend.
- Examine medium to large cap companies that have a track record of profitability and sufficient dividend coverage.
- Regard companies with demonstrated integrity and whose product or service you understand and believe in.
- Select a handful of these companies for your watch list. Observe how the stock price fluctuates or reacts to market forces. Observe for several months.
- Buy a company (going long) when the price is at or near support or during a dip in the overall market or sector. You have been watching the stock for months and you have studied the long term chart. Buy with confidence.
- Sell a portion or the entire position if the price reaches your profit target, if the company has a catastrophic development, or if they stop paying a dividend. Based on the criteria above, the company you own is reputable, profitable, and owned at a fair price, so a down cycle or rough patch alone should not be a signal to sell.
Dividend Builder Strategy Disclaimers
I will not claim to adhere to all of these criteria all of the time. For example, Amazon (AMZN) does not pay a dividend, but on a dip in price, it could present a beautiful opportunity for a quick swing trade. I reserve the right for a little flexibility if I see a position I can capitalize on. This freedom is important as it provides me a pathway to inject new funds into my account. My own funding stream and the steady drip of dividend payments is not an accelerant that will set the world on fire.
The points in my strategy are grossly and intentionally general. In trading practice, there will be a lot more nuance to your strategy. You will want to consider factors such as your goals, values, risk tolerance, position sizing, and portfolio diversification.
Building a Dividend Growth Portfolio
Now let’s run through highlights of my initial five hundred dollar investment in this new strategy of dividend building.
On December 20th, 2018, I opened the ledger by purchasing 6o shares of Ford (F) at $8.32 a piece. Not exactly revolutionary. And that is the point. You do not have to discover the next Netflix (NFLX) in order to turn a profit. I had watched Ford for over a year. Its price movements were familiar to me. I knew $8.32 to be a good entry, and if needed, I’d be comfortable holding Ford and collecting the 7.21% dividend yield over the long term.
Holding long term was not to be. At the end of February 2019, I sold out my shares of Ford having earned $9.00 in dividends and $28.29 from share price appreciation. My account was up 7.5%, and I now sat with $537.00 to invest in the next play. The new strategy was only weeks old, but it was working. It suited my psychology and the time and energy I had available to give to it. With a great sigh of relief, I dropped the blockchain day trading dream and embraced Dividend Builder.
Don’t worry, I am not about to deliver a blow-by-blow account for all my transactions that first year. However, here are some quick hits:
- Position traded STAG, LUV, DAL, and WSR for small profits and dividend payments.
- Bought HRZN at $11.70, sold half the position for profit and continue to hold the rest for the monthly dividend payment.
- Collected $37.32 in dividends and $58.20 in profit from selling stock.
- Value of $500 investment after one year was $635.69. A 27% gain.
I learned I am a successful trader when I stick to my strategy. My losing trades this year occurred when I strayed away from the strategy. The impulse to buy and sell, to make a lot of quick deals, is still with me. I still get my trading fix. The trades are just happening on a longer time frame.
Another lesson learned is to allow my winners to win for me. In 20/20 hindsight, I would have made a profit of $130 if I had held my 60 shares of Ford for two more months. Ford popped into the $10 range in April of 2019. By that point, I was on the outside looking in. I had been overly eager to jump into a monthly dividend paying REIT, STAG, and I was anxious to capture the profit I had in Ford at the time. The itch to make a trade was also present. Jumping out for profit too soon and the itch to trade for the sake of trading are influences I am aware of in my trading psychology.
Overall, I am grateful to have discovered and executed a strategy with success. I had been close to giving up as a trader. It was disheartening to see my investments shrink. This Dividend Builder approach has breathed new life into my investment efforts. It does not deliver the thrills of day trading volatile penny stock, and on the flip side, it does not deliver the chills of throwing money away. The slow and steady approach is a good fit for my personality and for the time I can dedicate to trading.
Never Too Late to Start
The overall goal of building a passive income stream is on track. My passive income from dividends is laughably small, but it is 100% more then I had a year ago. Reinforcing that it is never too late to start investing. Please feel free to share your own investment strategy or favorite dividend stocks in the comments. Thank you for taking the time to follow along with my story. You can check out my first monthly update at Dividend Builder – January 2020.