culture

The Business & Culture of a Dividend Income Portfolio

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.

Although I already publish monthly dividend income updates and forward income projections, this post will attempt to cover the expenses, profit margin, and the business culture of my 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.

Business-like.

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.

culture

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.

culture

Concluding Thoughts

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?

15 COMMENTS
  • Anthony
    Reply

    Good post Graham. I’m curious: why did your dividend income increase in Dec and Jan comparing to the previous months? Have you been pushing to save? Because that would be EPIC!!! I need to save more too and I need like minded people doing the same for the encouragement. 🙂 Great work!

    1. graham@reversethecrush.com
      Reply

      Thanks for commenting, Anthony! Dividend Income spiked during those months because I have been trying to save more. I earned more over the last two months as well. And that’s awesome if this post encourages you to save more. Get your money, man!

  • Tom @ Dividends Diversify
    Reply

    Hi Graham, I started dividend stock investing in 2004. My portfolio’s culture has evolved over time. I’m not sure I can characterize succinctly in this comment what it’s all about. I will have to think about it. Maybe inspiration for a future blog post at DD. Tom
    Tom @ Dividends Diversify recently posted…As The Dividends Deluxe TurnsMy Profile

    1. graham@reversethecrush.com
      Reply

      Hey Tom,

      Thanks for commenting! That’s awesome that you have been dividend investing for more than 10 years! I would definitely like to read about your culture and everything you’ve learned if you do end up writing a future post. Although I started dividend investing in 2011, I took a year off in 2016 as I’ve mentioned on this blog before. Unfortunately, I wasn’t able add to the portfolio and even ended up depleting some of it. Nevertheless, I’m back to DGI for good now. Have a great week, Tom! 🙂

  • Caroline
    Reply

    I wish I started investing in dividend stocks so much earlier than I did! I guess better late than never:)
    Caroline recently posted…Personal Finance Bloggers Wanted!My Profile

    1. graham@reversethecrush.com
      Reply

      Same, Caroline! If I could do it all over again, I’d start Dividend investing at 18 and already be FI. But better late than never for sure. Thanks for commenting. Have a great week!

  • Rob @ Passivecanadianincome
    Reply

    Hey graham. Nice post

    I definately deversify by sectors. Currently my top 3 are energy @14% financials at 12% utilities @10% my lowest sector currently is consumer cyclical at just over 5%. Diversifying internationally is something I really need to improve on though.
    As for trades I generally try to make the minimum buy at 1000 bucks to minimize my fees and maximize returns.
    Cheers
    Rob
    Rob @ Passivecanadianincome recently posted…Check Yourself Fool..My Profile

    1. graham@reversethecrush.com
      Reply

      Hey Rob,

      Thanks for commenting! And thanks for sharing the break down of your sectors. I imagine that financial services and utilities will remain as my top holdings as well. When it comes to diversification internationally, I’m lacking there too. I’ll probably diversify with etf’s in that space down the road. Thanks for letting me know your buying strategy. I originally bought with 2,000 per trade, then switched to $1,000, then $500, and now as low as $250. Thanks for stopping by!

  • MrDoublingDollars
    Reply

    Its hard to go wrong in the long term with the DGI strategy. I see business has already been picking up too! At the start I don’t worry about diversification either. It will sort itself out as each sector falls out of favor and becomes ripe for investment.
    MrDoublingDollars recently posted…Own Your LifeMy Profile

    1. graham@reversethecrush.com
      Reply

      Thanks for commenting, Mr. Doubling Dollars! I don’t think there are many downsides to DGI either! Thanks for noticing the progress. Business is definitely starting to pick up! I’m with you on the long term approach. I’m building for the long term and know that diversification will sort itself out as time goes on. Thanks for sharing your thoughts, DD!

  • GYM
    Reply

    Great post Graham! I love your Pinterest graphics! This is a very detailed analysis of your dividend investing strategy, thank you for sharing!
    GYM recently posted…GYM Net Worth Update: $717,100 (+0.5%, +$3450) February 2018My Profile

    1. graham@reversethecrush.com
      Reply

      Thanks for the comment, GYM! I’ve been working on improving Pinterest graphics and it seems to be helpful growing Pinterest traffic. I’ve still got a long way to go with growing and analyzing my portfolio. It will be exciting to learn more and analyze in more depth in years to come. Have a great day!

  • Mr ATM
    Reply

    Graham,

    Since you are reinvesting dividends immediately, wouldn’t DRIP be a better approach? At 4.95 a transaction unless you have few thousands to invest per transaction, your expense ratio would be quite high.

    The stocks you already own and you know you are going to keep them for good then why not use drip to build those positions up without any fees?
    Mr ATM recently posted…Micro Blog #16: A Brand New Dividend Stock Tool For You To Try For FreeMy Profile

    1. graham@reversethecrush.com
      Reply

      Hi Mr. ATM,

      Thanks for sharing your thoughts on the strategy. I agree that DRIP is the better approach for reinvesting. The only thing is that my portfolio is still very small at this time. The majority of my positions are not large enough to DRIP. I currently have one of my larger positions DRIPING, and I plan on building the rest of my positions to the point where they DRIP. From there, I plan to let the automatic reinvesting do more of the work.

      I also kind of look at it like this – I’m still working right now and have disposable income. I spent $153.45 in total fees in 2017 which works out to 31 trades. It’s true that amount impacts the returns of a smaller portfolio from a percentage standpoint. But in the big spectrum of things, $154 per year is not enough to impact my life. Even if the fees double to $300 annually, that’s still $3,000 over a 10 year period. The impact of the fees will get smaller and smaller as the size of my portfolio increases. And I also ensure that more annual dividend income is added annually than what I spend on fees. For example, I added $228.89 in annual income in 2017, which works out to a profit margin of over 49%. I guess I’m not paying as much attention to trying to beat the market. If my portfolio earns 5% this year instead of 7% because of the fees, I’m ok with that because the focus is on passive income. I know this strategy is a bit unorthodox, but I think the amount I spend on fees will still be lower than mutual fund costs, it makes investing more fun for me, and I think DRIP and portfolio size will eventually balance out the fees.

      I hope that provides a better explanation of my thought process behind the strategy. I am definitely keeping an eye on expenses and will adjust accordingly if I realize this strategy is not working. Thanks for getting me to think about this in more detail! Hope you’re doing well.

  • Mr ATM
    Reply

    Thanks for the explanation, you have thought it through 🙂
    Mr ATM recently posted…Micro Blog #17: My Quarterly Dividend Health Update For Utilities: PPL, SO, DUK, D, and EDMy Profile

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