5 Tips for Building Your Dividend Income Portfolio

On 2012/02/19, in Blog, by Miranda Marquit

One of the most difficult aspects of building an income portfolio with dividend stocks is the patience needed to succeed. Creating a portfolio that offers reasonable returns that meet your monthly cash flow needs is, for the most part, a work of time. Here are 5 tips that can help you get started building your dividend income portfolio:






1. Don’t Assume You Need a Large Amount of Capital

Dividend investors don’t need a large amount of capital to get started. Indeed, it’s possible to open a brokerage account with as little as $0. Some brokers won’t require an initial deposit. You don’t even have to buy whole shares in many cases. It’s usually possible to purchase partial shares, so you can use whatever money you have to make a purchase. Start small, and you might be surprised at what you can accomplish.

2. Invest Consistently

If you want to build an income portfolio using dividend stocks, you need to invest consistently. This means that you invest on a regular basis, whether it’s once a week or once a month. Set up a regular schedule so that you are investing at regular intervals. Consistency is key if you want to take advantage of dollar cost averaging, and if you want to ensure that your portfolio grows.

3. Use DRIPs During the Building Phase

You can boost your power to build your portfolio if you make use of dividend reinvestment plans during your building phase. While you are building up your portfolio, use DRIPs, to help you accelerate the process. The dividend payouts will automatically buy more shares, so that you see bigger payouts, so you can buy more shares. This process will help you build your portfolio faster. You can stop using DRIPs once you are done building the portfolio and you are ready to receive the payouts for your regular expenses.

4. Consider Stocks that Regularly Raise Dividends

While the past can’t predict the present, you can still get an idea of a company’s dividend practices by considering the history. Look for stocks that consistently raise dividends. One good place to start is the list of safe dividend stocks. These are stocks that raise dividends at least once a year for the past 25 years. If you hold stocks that show regular dividend increases, you have a better chance of building your portfolio faster. Combine regular increases with a DRIP, and you have a potentially winning portfolio.



5. Be Realistic about Your Time Frame

Finally, you have to be realistic about the time it takes to build an income portfolio. You’re not going to end up with enough shares to generate the payouts you need for regular income in a short period of time. It takes planning and time. You can expect to take between seven and 10 years to build an income portfolio. It might even take longer, if you have to start with smaller capital. Be realistic about your time frame, and plan accordingly.

You can start a dividend portfolio now, and reap the benefits later. A dividend income portfolio is meant for the future, and not something you can expect to see regular cash flow from right now.


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