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Dividend Stock Portfolio Building: How Big Should Your Stock Position Be?

You build a dividend stock portfolio one stock at a time. But how much should you buy the stock of a quality company until you stop? 

You might stop when the stock is no longer attractively priced or when you’ve bought a big enough position.

If you are relatively new to investing, you might be confused about these terms: “starter position”, “partial position”, and “full position”. I’ll explain them real soon (in the section after the next one).

Dividend Stock Portfolio Building Examples

Portfolio building is about spreading risks. You might refrain from buying more than 25% of your stock portfolio in a sector or 5% in a stock. For example, banks, insurance, and asset managers fall under the financial services sector. 

Under the 25% rule, these holdings cannot make up more than 25% of your portfolio when you make purchases. Under the 5% rule, you won’t have more than 5% in Royal Bank of Canada (TSX:RY)(NYSE:RY) or Brookfield Asset Management (TSX:BAM.A)(NYSE:BAM) when you buy their shares.

You might also limit how much you invest in a dividend stock by the yield it provides. For example, a high-yield dividend stock that pays a 10% yield could be risky. If so, you might only limit it to contribute to only 1% of your annualized income. It could be a great move to just avoid risky, high-yield stocks altogether. 

Not all high-yield stocks are risky. You’ll need to perform fundamental analysis on potential ideas to determine if they’re risky or not, given the economic condition or situation at the time. During a market crash, a nice bunch of quality dividend stocks could provide nice yields of 5-10%.

Here’s a concrete example. A new $11,000 dividend portfolio that’s focused on growth (or dividend growth) might look like this with $1,000 invested in each of the following:

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