I’m always looking for new ways to analyze my portfolio and share my perspective on dividend investing.
As such, I decided to write a post about the business and culture of a dividend growth investor’s portfolio.
It will explain how my dividend business generates earnings, and it will provide insight on the quality of earnings.The Business & Culture of a Dividend Income Portfolio #culture #investing #dividends Click To Tweet
The Culture of My Dividend Business
Every successful blogger, entrepreneur or company establishes a culture to form an identity.
It acts as a differentiator and attributes to a solid strategy.
In turn, a dividend investor should strive to create a suitable business culture as well.
Below is an overview of the culture I created for my cash flow machine.
Firstly, the RTC Dividend Business is not taken lightly!
Dividend investing and managing money is serious business, which is why I maintain a business-like culture.
Ultimately, a business-like approach to dividend investing means the primary goal is to increase profits for shareholders (fortunately I’m the only shareholder).
This approach allows me to focus on increasing profits publicly with the same type of pressure to increase income as publicly traded corporations do.
Don’t hold on to cash.
Of course, I save money for emergencies and for a house in other accounts.
However, when it comes to cash sitting in the dividend portfolio, it get’s reinvested immediately, regardless of how small the amount…
If there’s enough to buy a few shares, it will be reinvested.
That said, this strategy does cause the business to incur more fees than necessary. But I’ve thought this strategy through and I believe it to be sound.
For example, I was paying $28.95 per trade when I began investing in 2011. But now, I only pay $4.95 per trade.
While I did invest more per trade on average back then, I’m able to invest with much smaller sums of capital now.
Although transactions can eat in to returns, the annual dividend income added offsets the cost, and I don’t need the annual income to live off until I reach financial independence anyways.
The key is to acquire as many assets out of weak hands as possible right now!
Furthermore, by tracking the margin of return, I can ensure that trading costs are not becoming more than comparable mutual fund MER costs.
Increase Annual Income Monthly
Since I’m aiming for financial independence through dividend investing, the goal is to increase annual income as fast as possible.
The chart above displays how much annual income I’ve been adding on a monthly basis over the past 6 months.
As you can see, there has been an uptick over the past two months, which I expect to continue.
Ultimately, the culture of this business is to reinvest immediately. I don’t hold on to cash to make quarterly or annual investments, nor do I try to time the market.
I simply dollar cost average my way in to quality, pre-selected businesses as soon as cash is available.
In short, I am attempting to increase the monthly cash flow as fast as possible.
The goal is to create a cash flow machine that provides additional capital to invest.
I may not be completely financially independent in a few years from now, but at least I’ll be earning an extra $100 to $250 per month!
Margin of Return and Business Costs
2017 Profit Margin: 49.16%
2017 Business expenses: $153.45
2018 Profit Margin (to date): -8.34%
2018 Business Expenses: $44.55
Since dividend income investing is such a low-cost business, I use a very simple calculation to determine margin on return:
Fees/Forward Annual Dividend Income = margin of return.
In my opinion, concerns over fees are not worth worrying about in the big spectrum of things.
What’s most important is savings rate and time to allow compound interest to take over.
Moreover, I say that concerns about fees are overrated because paying high fees is better than not investing at all!
It’s better to be wreckless with saving than it is to buy useless stuff.
Nevertheless, I will keep a close eye on my margin of return and business costs.
Based on January’s expenses ($44.55), I’m on pace to spend more than $500 in fees, which is much more than I plan to spend (SMH).
However, fees were mainly higher this month due to additional income received from blogging, and thanks to a few extra hours worked at the good old 9 to 5.
With that said, the goal is to spend less in fees than how much income is added.
Furthermore, I’ll aim to maintain a profit margin of more than 20%.
Percentage Held Per Company
In total, the RTC Portfolio is compiled of 9 different holdings.
As you can see from the charts provided above, the largest holding pays $88.57 annually and accounts for 33% of annual income.
Ultimately, 33% of income from one company will pose too much risk in the future as the portfolio value increases.
In the long term, though, the majority of positions will be no more than 5 to 10% of the total portfolio value.
However, I plan to hold 2 to 4 core positions that will exceed that threshold.
Industry and Sector Exposure
I don’t often mention much about the businesses I own on this blog for numerous reasons.
However, an important aspect of my approach is to only purchase quality businesses that I understand.
To sum it up, I’m a dividend growth investor with value investor values.
Most of my early investments were based off The Intelligent Investor by Ben Graham (check the resources page for more on that book).
But as time went on and I learned more about investing, I realized that dividend income investing is the most appropriate approach for me.
Simply put, I purchase fairly-valued, dividend paying stocks in industries that I understand.
Since I previously worked in this sector, the RTC portfolio is heavily weighted in the financial services sector.
That being said, the portfolio is seriously lacking in technology and consumer goods sectors.
Howbeit, you can be sure that position will be started for both sectors before the end of 2018.
Have Fun Investing
One of the reasons I aspire to build a cash flow machine is to constantly have capital to allocate.
On the other hand, speculating with 10% or less of your net worth can lead to some interesting opportunities.
Of course, that’s after you’ve gained enough investment experience in the markets.
Essentially, if I have constant cash flowing in through dividends, I can take more risk with the dividend capital.
With that said, I enjoy the process of investing in general.
I have a pre-selected lists of stocks that I’ve already analyzed and plan to buy on later dates at the right prices.
Over time, I dollar cost average my way in to this list by buying shares when prices dip.
Candidly, I just enjoy the process of adding to the portfolio, and I especially enjoy updating my charts to see how much annual income increased.
Ultimately, I never want to stop working – retirement is not the reason why I’m pursuing financial independence.
I’m chasing FI to perfect my dividend income portfolio, and to be able to spend more time blogging.
Since the purpose of my portfolio is FI, it’s only natural that a frequent investing culture would develop.
But in the end, it’s important to develop a culture that’s appropriate for your individual investment style.
Questions for the Readers: Has your portfolio developed it’s own culture? What is your policy on investment fees? Do you stick to certain sectors?