How to Start a Dividend Stock Portfolio with $1000 (Step by Step)

today we are going to take a thousand dollars and build a dividend portfolio the reason that i like dividends is because they are a true form of passive income all you have to do is literally buy the stocks you go to sleep you wake up and at regular intervals throughout the year boom you get dividends so let's talk more about that today and let's roll that intro real quick [Music] hey guys welcome back to my channel my name is humphrey and i make videos here on youtube on investing personal finance and entrepreneurship i get a lot of questions from you guys on how to actually start your own dividend portfolio so today i'm gonna walk you through it step by step so by watching this video you're gonna learn one the pros and cons of starting a dividend investing portfolio two what to look for when selecting stocks in a dividend portfolio and finally i'm going to show you a sample dividend portfolio that i made with a thousand dollars and also i'm going to give you some analysis of a few of the stocks that i chose for that 1 000 portfolio so let's get right into it and first we're going to be talking about the pros and cons of a dividend portfolio starting off with the pros number one passive income when you own a dividend portfolio it's a true form of passive income you actually just buy the underlying security and every now and then you'll get paid a dividend if you don't know what a dividend is it's basically when you buy a stock that company has so much in profit that they're gonna pass back some of their profit back to their shareholders typically dividend stocks are larger blue chip companies it is entirely possible to build up such a big investing portfolio that all of a sudden you can live off of your dividends but you do need a lot of money invested to do that the second pro of owning a dividend investing portfolio is compounding returns when you reinvest dividends the growth starts to build upon itself and really just catapults your portfolio into that next stratosphere lastly dividend portfolios protect against inflation dividends have increased at a rate of 4.2 percent since 1912 and inflation during that same time period has been around three percent there are some cons in investing in a dividend portfolio and let's go over them really quickly the first is that you only own large cap corporations and companies and the reason is is because a company that can pay you a dividend is already established and the majority of dividend paying stocks are blue chip stocks so in terms of diversifying your assets across all different types of companies such as smaller companies that have a huge growth potential you don't really get that with dividend-paying stocks second your returns might be limited when a company pays out a dividend after stock goes ex-dividend the share price typically drops by the amount of the dividend paid to reflect the fact that the new shareholders are not entitled to that payment lastly companies can cut their dividend at any time they're not actually guaranteed and a company actually doesn't owe you a dividend just for owning their stock now obviously some of the dividend aristocrats as they're called have been paying out a consistent dividend over the past 25 years and also growing their dividend over the past 25 years so they're not likely to cut their dividend but for example a big company like disney just cut its dividend this year and that's one of the cons you just don't know if dividend paying stocks are going to continue paying a dividend or not so those are the pros and cons of owning a dividend investing portfolio i would say if you're a long-term investor that's looking for some cash flow then a dividend paying portfolio is actually a pretty good idea for you if you're someone who prefers a lot of growth and wants to diversify across a large number of companies not just large cap but also small mid caps and other types of investments then a dividend paying portfolio might be a little bit too safe or a little bit too boring for you but let's say we want to invest in a dividend paying portfolio what are the key components we should be looking for when actually starting our own dividend portfolio the first thing i like to look for is a company that has a track history of paying their dividends the last thing that you would want when investing into a dividend paying stock is that if it cuts its dividend that is no good to find out how much a company actually pays in a dividend you can look up their ticker symbol on yahoo finance google finance or if you just want their dividend history there's dividend.com the second component for a dividend investing portfolio is to look at the yields but don't chase the dividend yields so different companies will pay a different amount of a dividend and that dividend as a percentage of its share price that's actually known as dividend yield for example a company like att pays a dividend of 2.08 dollars a year which as a percentage of their share price is 7.33 percent compare that to home depot which pays almost triple at six dollars of dividend a year but as a percentage of their share price it's only two point two three percent so if you invested a thousand dollars into a t you would get seven point seven three percent of that back every year and if you invested a thousand dollars into home depot you get 2.23 of that back every year the biggest note here though is that high yields are not always a good thing many dividend investors get caught up into really really high yields like those let's go for the company that pays the highest percentage for their money back but those stocks don't always return very well on a total performance basis if a company is paying a huge yield on their dividends it's likely that that company is not reinvesting their profits and trying to expand and grow their underlying business so that brings me to my next point which is number three you've got to pay attention to the dividend payout ratio the dividend payout ratio is simply represented as total dividends paid divided by the company's net income the easiest way to put this is let's say a company gets 10 million dollars a year in profit and they're paying out 5 million dollars a year in dividends that's 5 million divided by 10 million so their payout ratio is about 50 they're paying out half of their profit as dividends every year the more a company is paying to their shareholders the less that they're actually reinvesting into their business because all their money is going back to their shareholders and not into the business companies with a high dividend payout ratio have less money to work with and thus their growth potential is stunted when selecting a stock it's important to pay attention to their dividend payout ratio because you want to assess whether or not you think their dividend is sustainable in the long term lastly the fourth thing that we should be seeking in a dividend portfolio is diversification ideally we choose between 15 20 25 or 30 stocks that are all dividend paying across multiple different industries what we're doing with the dividend investing portfolio is we're investing for future income cash flow needs we're not trying to shoot for the moon in terms of total growth yes it is a little bit boring but boy are you going to sleep better at night just knowing that your investing portfolio is not going to be super volatile especially if it's diversified across all different types of industries and all different types of companies so right now let's look into a sample portfolio that i built with a thousand dollars and i'm gonna bring this up on the screen so here it is here's my dividend portfolio and we can see that uh if this is called the if i only had a thousand dollar dividend portfolio i chose 16 stocks here and of the 16 stocks i chose a few that are in each different type of category so i have some there in consumer cyclical i have some that are in consumer defensive telecom i have one reit some health care stocks technology and financial services so as you can see i'm already well diversified across all the different types of industries next what i did was i took a thousand dollars i just wanted to evenly spread them across all the stocks that i had so i figured that i had right here uh 16 stocks i believe and so what i did was i just took a thousand uh divided by 16 and that was 62.5 dollars per share or per stock that i could own as you can see in column d i'm going to highlight it right here basically these are the amount of shares that i could get for each stock based on their current price and if you notice these companies they're all really large companies for example 3m is one of them at t is another one johnson and johnson apple mastercard these companies aren't going anywhere so real quick i wanted to highlight some of the stocks that i picked for my dividend investing portfolio and explain exactly why i chose those the first is home depot if we take a look at home depot using the yahoo finance website we can see that currently it trades at 278 as of this recording the 52-week high is 292 and the low is 140. they pay a 6 dividend per share at 2.2 percent yield if we take a look into their statistics we see that they have a profit margin of 9.91 percent and their dividend payout ratio is 52.33 which means that they're paying about roughly half of their profit right now as a dividend home depot is not a dividend aristocrat however home depot remains financially stable meaning that the company will probably at least continue or grow their dividend in the coming years despite coronavirus related shutdowns their sales actually increased by 7.1 percent in the most recent quarter and home depot pays a much higher yield for their dividend in comparison to some of their competitors like lowe's another stock i want to talk about is coca-cola coca-cola currently trades for about 49 as of this recording their 52 week high is 49.56 and the low is 36.27 it's not too much of a volatile stock it pays a dollar 64 dividend at 3.33 yield per year and a payout ratio of 76.42 percent it has a nice healthy profit margin of 26.77 coke has one of the longest running dividends ever it has been paying and increasing its dividend for the past 58 years which actually gives it a better status than dividend aristocrat which is actually called a dividend king i think this is another good company to hold in a dividend investing portfolio because simply one it's not going anywhere two the dividend has been continuing for the past 58 years it's pretty much guaranteed at this point and three it's kind of recession proof i think that people are gonna be drinking coke no matter if the economy is good or the economy is bad i will say that with coke you're not gonna receive a ton of growth out of it but you will receive a consistent dividend which is actually quite nice lastly let's talk about visa visa currently trades at 201 as of this recording their 52 week high is 217 and a low of 133. the dividend right now is paying a dollar and 20 cents which is not super high and their dividend payout ratio is a modest 21.86 percent they do have a really high profit margin though fifty one point three seven percent and i would buy this stock to get a mix of a slight dividend but mostly for the appreciation of the underlying company stock as of quarter two twenty twenty growth and debit transactions are actually going up especially due to cobin 19 and the payment volume has been going up as well again visa is not going anywhere and if anything i think people are going to use credit cards way more than cash going into the future so there you have it that was a dividend portfolio that you could easily start with a thousand dollars i'm going to be making my portfolio available to download so that you can analyze it if you have any questions on money or personal finance i have no problem answering it i'm an open book so you can always leave me a comment below i hope you guys found this video valuable if you did like it please make sure to like the video and also subscribe to my channel i post videos here on youtube once or twice a week on personal finance investing in entrepreneurship and also click the notification bell because you'll get notified every time i drop a new video feel free to follow me on instagram my handle is humphrey talks i'll put it up on the screen right now and if you're ever just bored scrolling the gram and you want to find me and just leave me a comment or send me a dm i'm available to you guys there lastly if you'd like some free socks from weeble or robinhood check out the links in my description below you'll get a free stock from robinhood when you deposit any amount of money and with weeble if you deposit a hundred dollars you could get a stock valued up to sixteen hundred dollars that was the end of the video i'm going to put up my patrons here on the screen and uh thank you guys for supporting me so much let me know if you have any questions and how i can help out

Channel: Humphrey Yang

Views: 376,501

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Keywords: passive income, dividend stocks, dividend investing, dividend income, how to make passive income, dividend growth investing, dividend portfolio, how to make passive income with 1000, dividend income for retirement, dividend stocks to hold forever, dividend income spreadsheet, dividend investing robinhood, dividend stocks portfolio, dividend growth investing portfolio, dividend investing strategy, dividend investing portfolio, dividend investing for beginners, dividend 1000

Id: uuckc4-VbSI

Length: 10min 47sec (647 seconds)

Published: Thu Oct 01 2020