Build a Quality Income Portfolio at The Stock Level

In the previous article, I wrote about quality at the income portfolio level. This article continues with a focus on choosing quality companies to add to our income portfolio. Amongst other things, the factors that affect the quality of a company include the company’s earnings consistency, its financial strength, its yield, and its dividend growth rate.

Choosing a Quality Stock for your Income Portfolio

First, let’s look at choosing a quality income growth stock. It should:

  1. have a minimum yield (or not)
  2. have a minimum dividend growth rate
  3. be rated BBB+ or better
  4. have earnings growth 7 out of 10 years
  5. have manageable debt levels
  6. have a moat
  7. add to the diversification of our portfolio by sector or by stock
  8. be at fair valuation or better

1) Minimum Yield (or not)

Because we already set a minimum yield for the portfolio, there’s no need to set a minimum yield on individual stocks. Thus, I’m not limited by the yield in my choices. That said, I’m a young investor still in my twenties, so it makes sense for me to focus more on the dividend growth rate instead of on the current yield. On the other hand, it might make more sense for folks near or at retirement to focus more on yield instead of on the dividend growth rate.

2) Minimum Dividend Growth Rate

I want to set a minimum dividend growth rate for individual holdings. If a company is growing the dividends too slowly, I can probably find a similar quality company with similar yield but higher dividend growth.

Read the full article on Building a Quality Income Portfolio – Part 2: At the Stock Level on Seeking Alpha.

Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.

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