DIVIDEND INVESTING
Overview
Building a portfolio of stocks that pay regular dividends to generate passive income. Focus on dividend growth (companies that raise dividends annually) rather than just current yield.
Setup
- 1.Screen for companies with 5+ consecutive years of dividend growth.
- 2.Verify payout ratio is below 60% for sustainability.
- 3.Check that dividend coverage ratio exceeds 1.5x.
- 4.Diversify across 15-20 dividend payers in different sectors.
- 5.Reinvest dividends (DRIP) if not needed for income.
Max profit
Total return = stock appreciation + dividends received (historically 8-12% annually for dividend growth stocks).
Max loss
Full investment if company fails and eliminates dividend (diversification reduces this risk).
Breakeven
Purchase price; dividends reduce effective cost basis over time.
When to use
For investors seeking regular income, retirees, or those building long-term wealth through compounding dividend reinvestment.
When to avoid
Chasing the highest yields without checking sustainability. High-yield stocks often signal dividend cuts ahead.