Making money from the stock market requires buying and selling stocks. The idea is to profit from capital gains when you sell stocks for higher prices than you paid them for.
When you build a dividend stock portfolio, you can potentially reduce tremendous amounts of work by focusing only on the buying. If you want to create a durable dividend stock portfolio with less work, here are three tips for you!
Dividend stock selection
You want to select dividend stocks with durably growing dividends for your buy-and-hold dividend portfolio. Here are some examples.
Do you want a dividend income stream that will increase every year? Here are some simple tips to check for the dividend stocks you’re interested in. The order to check matters because if the dividend stock doesn’t pass checkpoint one, it’s out.
Does the dividend stock have a track record of dividend payments?
Notably, this checkpoint allows dividend stocks that have a track record of maintaining or increasing their dividends to pass. Though we prefer stocks to increase their dividends every year, we understand that sometimes the macro environment forces stocks to freeze their dividends. It is a great feat to even maintain dividends during stressful times.
For example, to be prudent, the regulators forced the big Canadian banks to freeze their dividends around the time of the last financial crisis in 2009 and 2010. Once again, the regulators forced the banks to freeze their dividends. Even the best of the bunch, National Bank of Canada (TSX:NA) has maintained the same quarterly dividend for seven consecutive quarters so far, whereas prior to the pandemic, it increased dividends every two quarters.
Again, the dividend freeze is no fault of the big banks. National Bank has maintained or increased its dividend every year since at least 2002. Now, that’s a track record!
Depending on your comfortability, you might seek dividend stocks that have maintained or increased dividends for at least five, 10, 15, or 20 years.
If a dividend stock hasn’t made consistent dividend payments for at least five consecutive years, it’s out. The five-year test would include the stressful pandemic period that we’re experiencing, which is a decent test of resilience/defensiveness for a dividend stock.
Are you new to stock investing or an experienced investor who wants to improve their stock returns? Here are a few tips that should help.
Know yourself well.
Know your stocks well.
Know the stock market well.
I will include examples to illustrate the points.
Know Yourself Well as an Investor
Don’t know what stocks to invest in? Seek stocks that suit you in terms of your temperament and risk tolerance. You might need to test the waters to find your group of stocks.
One way to do so is by investing in a virtual account so that you won’t lose any real money if they turn south. If you can’t raise your enthusiasm from that, consider investing tiny amounts to get a feel of stock investing.
If you’re an aggressive investor and want high growth, consider growth stocks like Amazon (NASDAQ:AMZN), Alibaba (NYSE:BABA), and Tencent (TCEHY).
Conservative dividend stocks
If you’re a conservative investor, think about sticking with proven businesses. Personally, I find it’s easier to get started with dividend and value investing, which focuses on getting safe dividends and paying fair or better valuations for stocks.
One stock I bought earlier this month that falls in this category is TC Energy (TSX:TRP)(NYSE:TRP). It is a top 15 Canadian dividend growth stock with 19 consecutive years of dividend growth. Its 10-year dividend growth rate is 7%. TRP stock is already up close to 7% from when I bought it. However, it still offers a juicy yield of almost 5.4%, which is still attractive levels.
TC Energy operates a gas and liquids pipeline and power and storage portfolio. Buying the stock at discounted valuations (such as now!) has led to double-digit long-term returns. There’s no reason that this time will be any different.