Tag Archives: NYSE:RY

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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Stock Investing is Not Just About Returns: 2 Things You Might Care More About!

As you may know, I’ve been investing in stocks for about 13 years. I surely love it when my stocks provide outperforming returns. Of course, there are laggards, too. 

What more can stock investing be about if it’s not just about returns? Every stock investor wants to get rich, right?

I discuss below why earnings quality and dividend income could be important to you.

a pile of U.S. dollar bills
Photo: SuperTowTrucks Blog. Licence: CC 2.0. Source: flickr

Earnings Quality

Since I delved into growth investing, including in small caps, I’ve become more deeply appreciative of stocks with underlying businesses that have superb earnings quality.

I hate to break the news. Stocks with high earnings quality won’t give you the greatest returns. However, they give you something else — a defensive, low-risk holding. These kinds of stocks should provide reassurance to any stock investor when the macro environment is in turmoil. 

The more conservative you are as a stock investor, the bigger percentage of these types of stocks you should hold in your stock portfolio. 

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1 Investing Mistake You Want To Avoid And 5 Lessons Learned

There are so many investing mistakes an investor can make. So, it’s helpful to see the mistakes others have made and learn a lesson or a few. 

One investing mistake I’ve made time and time again was booking profits on solid stocks. Some investors believe it’s not wrong as long as you make money. I agree there’s some truth in that but not the whole truth. (I’ll elaborate at the end of the article.)

There was a number of reasons why I booked profits, and I’ll illustrate with the examples below why I was wrong. 

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The Stock Got Too Expensive?!

I sold out of Royal Bank of Canada (TSX:RY)(NYSE:RY) in August 2016. At the time, I thought the top Canadian bank was close to fully valued and I expected to be able to buy the stock back at a lower price.

From my selling point, the stock went on to deliver total returns of about 12%. What’s more? Fast forward three years, RY stock looks fairly valued to me right now trading at about 11.6 times earnings at about CAD$102 per share. 

Lesson Learned: In your lifetime of holding quality stocks, for sure there must be times in which they become undervalued, fairly valued, or overvalued. If your goal is to build a solid portfolio and use stocks, such as Royal Bank, as stable foundation stocks, you should aim to buy when they’re fairly to undervalued and hold for a long time. 

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