Live Off Your Monthly Dividend Portfolio


During his/her accumulating phase of investing; the dividend growth investor focuses on building a strong money making machine. Each month, dividend payouts are deposited into his investment account and combine this money with his current savings to enable him to buy more shares. At this point, the only question that matters is: which is the best stock for my new investment money? Should he buy more shares of an existing holding or perhaps add another company to his portfolio? In both cases; his main decision criterion will be based on his investment philosophy and the search for the best possible investment.

What is so different when the dividend growth investor becomes a retiree? In an ideal world, the new retiree should only have to change the dividend payout to be deposited into his bank account and live off its distribution. Unfortunately, life is not that simple.


A Major Problems for Retirees & Other Income-Seeking Investors

Do you know what Kimberly Clark (KMB), Wal-Mart (WMT), BlackRock (BLK), PepsiCo (PEP), Baxter International (BAX), Analog Devices (ADI), Xcel Energy (XEL), General Electric (GE) and Genuine Parts (GPC)have in common? Yes, they are solid dividend growth stocks. But they share something else in common; they all pay their dividend during the same quarters. Therefore, imagine a retiree with a strong position in these companies. He would receive the bulk of his dividend income in March, June, September and December and almost nothing the rest of the year.

If you plan on living off your dividends at retirement, you will have to follow a tight budget and hold on to your quarterly dividend payment to pass through the meager dividend months. The first problem for an income investor is that most companies don’t pay their dividends monthly, they pay them quarterly.


MLPs and other Monthly dividend stock Limited Diversification

Sure, you can always look for a list of monthly dividend stocks. The most commons are MLPs (Master Limited Partnership). Since their purpose is to redistribute an important part of their profits, MLPs usually pay their dividend monthly. However, they are heavily concentrated in the basic materials and financial sectors. Holding shares of only these two sectors is quite risky and it’s even worse for a retiree.

There are also other companies paying their dividends monthly. Once again, sector diversification may become an issue. But the fact that you have to ignore most dividend growth stocks and long-time dividend growth history payers such as the dividend aristocrats can hurt your portfolio like nothing else. You basically feed your portfolio with fast food when you could make a delicious salad with grilled chicken. This is why I’ve developed a strategy to build a solid dividend growth stock portfolio with relatively equal monthly dividend payments. I’ve done my research and built these portfolios to answer a question asked by some of my readers. I divided the process to building your monthly dividend portfolio into four segments:


#1 Make a List of All-Star Dividend Stocks

The first step is no different than any other dividend growth portfolio building method; you need a list of strong companies that will grow their dividend first. Each investor has their own “investing recipe”, mine is built on 7 investing principles I follow to succeed:


Principle #1: High Dividend Yield Doesnt Equal High Returns

Principle #2: If There is One Metric; Its Called Dividend Growth

Principle #3: A Dividend Payment Today is Good, A Dividend Guaranteed For the Next 10 Years is Better

Principle #4: The Foundation of Dividend Growth Stocks Lies in its Business Model

Principle #5: Buy When You Have Money in Hand

Principle #6: If You Know Why You Bought, You Will Know Why You Sell

Principle #7: Think Core, Think Growth


These principles are based on several research papers I’ve read and through my own experience. The key idea is to be able to make a strong list of stocks to start selecting them. But if you have your own stock picking methodology, that is just fine. The important part is that you have one before continuing any further.


#2 Use a Dividend Calendar

Then, the monk work begins! If you don’t benefit from a paid investing service, chances are you will have to check out each company and note when it pays its dividend. By using a simple Excel spreadsheet invest a few hours with a strong coffee, you can easily achieve this task. I suggest you add the current dividend yield into your spreadsheet for the next step.

Basically, the idea is to be able to regroup companies by month. Start with quarterly paying dividend stocks as you can add a few monthly distributors at the end of the process. They won’t change much in your portfolio configuration as the quarterly payers are the ones showing a payment timing issue.

Once you regroup all companies per quarter, it’s time to move to step #3.


#3 Average Your Yield & Watch Out for Sector Concentration

This step sounds quite simple, but it requires a good mental acuity. When I did this to build the “perfect” monthly dividend portfolio, I had to choose from roughly 10-15 great companies per quarter therefore among a total of 50-60 stocks.

Then, I tried to make an average yield for a group of 4-5 stocks per quarter I could replicate in others to make sure to have an equal dividend payment. Then, once I selected my 15 companies, I had to make sure I wasn’t too concentrated in any one sector. To be honest, it was more challenging than I thought. I wanted to make sure that I didn’t prioritize the point of making a monthly dividend portfolio over the dividend growth investing philosophy. I ended-up with a portfolio of 15 stocks averaging 3.72% dividend yield and showing 8 different sectors. Most importantly, even though I’ve selected 3 consumer defensive and 3 consumer cyclical, they are not related to the same sub-industries.

Each position of my portfolio is equally weighted among my portfolio and this requires active portfolio management.


#4 Rebalance

As I previously mentioned, active portfolio management is highly recommended if you build a monthly dividend portfolio. Each dividend increase and stock value fluctuation can affect your monthly budget. I intend to rebalance the portfolio on a quarterly basis with an option to add a few dividend ETFs to smooth out the payments over time.


Here’s What it Looks Like

Here’s the example of my portfolio showing both sectors and yield to give you an idea of how it is built. I’ve hidden the ticker for respect to the members of my paid investment platform; Dividend Stocks Rocks. Each member benefits from our 14 real time managed portfolio along with 10 stock lists and our bi-monthly investing newsletter.



If you are curious about my investing services, you can check out my investment methodology, this will you explain how I build and manage my portfolios.

Leave a Reply