Tag Archives: TSX:BAM.A

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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5 Key Stocks to Invest in 2020 and Beyond

Let’s cut to the chase. Here are the four types of stocks that you’ll want to be invested in 2020 and beyond. 

Rome, Italy. Image by Andrea Spallanzani from Pixabay

Tech stocks: e-commerce, cloud

Too many businesses have been impacted by the COVID-19 pandemic — some more so than others. Restaurants, tourism, and retailers have been more greatly impacted. On the contrary, the tech space has outperformed, as most tech companies operate in a growing pie. 

Particularly, you’ll want to invest in tech stocks that have exposure to e-commerce, cloud, or growing markets. Many of these stocks don’t pay a dividend, but investors should consider them for growth. 

Here are some examples: Alibaba (NYSE:BABA), Alphabet (NASDAQ:GOOGL)(NASDAQ:GOOG), Amazon (NASDAQ:AMZN), JD.com(NASDAQ:JD), Microsoft (NASDAQ:MSFT), Tencent (TCEHY), etc. They have greatly outperformed the U.S. stock market in different time frames, but the chart below shows the past five years.

Chart
Data by YCharts

Healthcare stocks

Healthcare is also another growth area you’ll want to stay invested in. There’s the megatrend of an aging population.  Additionally, healthy people want to stay healthy and sick people cannot go on without their drugs or medical devices. 

The most conservative investors would look into adding Johnson & Johnson (NYSE:JNJ) opportunistically as a core holding. Bristol-Myers (NYSE:BMY) is another quality dividend payer. JNJ yields 2.6%, while BMY yields 2.9%.

Abbott Labs (NYSE:ABT) and Medtronic (NYSE:MDT) are also A-grade healthcare stocks to consider on dips. 

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The Best 3 Places To Look For Safe Dividend Income

If history gives a hint about the future, it indicates that companies in certain industries tend to generate stable earnings or cash flows that lead to stable dividends.

If we choose the quality companies from these industries, we can then build a diversified portfolio that generates a secure, growing income stream. Below, I list some possibilities.

Utilities: A Must-Own Sector

Earnings generated by utilities are relatively stable because people need to use electricity, gas, and water, etc. no matter if the economy is doing well or not.

One utility that came out strongly from the last recession was Brookfield Infrastructure Partners L.P. (TSX:BIP.UN)(NYSE:BIP). Since 2009 it has been a five-bagger.

Brookfield Infrastructure is a rock solid utility, which owns and operates a global, quality portfolio of infrastructure assets, including toll roads, railroads, ports, pipelines, and telecom towers.

Its trusted management, Brookfield Asset Management (TSX:BAM.A)(NYSE:BAM), employs value investing and actively recycles mature assets for higher returns. Because management owns 30% of the partnership, retail unitholders can expect the management to be unitholder-friendly.

Indeed, Brookfield Infrastructure has increased its distribution every year since 2009. Going forward, it gives the guidance to grow its distribution by 5-9% per year. Currently, it offers a yield of 4.5% to start.

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