How You Can Build a Robust Portfolio of Dividend Stocks

Dividends RisingI nonetheless expertise a flurry of pleasure once I obtain dividends in my checking account.You could argue that being an investor for 15 years could have scrubbed out the fun for me, however you’d be unsuitable.It’s a little like consuming ice-cream, a responsible pleasure of mine.We could now not be kids however most of us adults can’t assist however really feel a pang of pleasure when consuming our favorite ice cream.Dividends, certainly, style simply as candy.The course of to construct up a sturdy portfolio of dividend shares, although, will not be as simple because it appears to be likeIn my quest to construct up my dividend stream, I’ve made quite a few errors and encountered my fair proportion of challenges.Investing doesn’t simply contain a “purchase and overlook” course of.Keeping an eye fixed in your dividend shares is a crucial half of the method of changing into a extra enlightened investor.If you’re studying this and attempting to construct up your personal stream of passive earnings, my hope is that these classes can provide some steerage on what to do, and what to keep away from.The excessive yield “lure”The thought of having fun with a excessive dividend yield could appear engaging, however there’s often no free lunch on this world.I’ve learnt the onerous approach that the important thing to rising your dividend stream is to not financial institution on excessive yield shares.Most of the time, the yield is excessive to compensate for hidden dangers which will floor at sudden occasions to scuttle your investments.Take the instance of First Ship Lease Trust (SGX: D8DU), or FSLT, a specialised enterprise belief listed in March 2007 to personal and lease vessels on a bareboat constitution foundation.I invested a chunk of my cash into the belief again then because it was paying out a very engaging yield.Back then, FSLT’s enterprise mannequin was touted as having the “lowest danger” among the many gamers within the trade because it was the operators (i.e. its clients) that tackle the majority of the operational dangers.The distribution for the fourth quarter of 2007 stood at US$0.0242, or round S$0.0348.Annualising this distribution, the complete yr dividend of S$0.1393 meant that I’d be receiving a dividend yield of round 11.6% at a share value of S$1.20.Story continuesBut everyone knows what occurred subsequent.The international monetary disaster broke out in late 2008 and decimated the transport trade.Ship values plunged to crisis-levels and the belief may barely keep afloat, not to mention pay a distribution.FSLT’s share value greater than halved by October 2008 to simply S$0.50, and the belief is buying and selling at simply S$0.081 at present.I bought my shares in 2010 at a 32% loss even after accounting for dividends acquired.This worthwhile lesson taught me to not merely chase the headline yield with out contemplating the dangers associated to a firm’s enterprise mannequin.Declining payoutsAndifferent error of mine was to personal a dividend-paying firm whose enterprise couldn’t face up to the onslaught of competitors.Kingsmen Creatives Ltd (SGX: 5MZ) is a communication design and manufacturing group that gives retail inside fit-out companies and fabricates buildings for company occasions and theme parks.While the enterprise boasts respected purchasers similar to DBS Group (SGX: D05), Ralph Lauren (NYSE: RL) and The Walt Disney Company (NYSE: DIS), the primary indicators of bother got here in 2015.After paying out a full yr dividend of S$0.04 a yr from 2009 to 2014, the group dropped its dividend to S$0.03 that yr, citing robust situations within the high-end luxurious retail phase that precipitated income for that division to plunge by 26% yr on yr.For the fiscal yr 2016, dividend was diminished once more to S$0.025 in tandem with a 37.6% yr on yr plunge in web revenue.By 2019, annual dividend had been slashed to simply S$0.01 because the group noticed a sharp 94% yr on yr plunge in web revenue.Needless to say, with the outbreak of the pandemic, Kingsmen proceeded to get rid of its dividends completely.In hindsight, the declining dividend funds since 2015 ought to have been a clear purple flag that the enterprise was dealing with headwinds.An investor who bought again then may have saved himself a lot of heartache.The share value proceeded to plunge from S$1.00 in July 2015 to the present S$0.28.This unhappy instance reveals that an investor ought to keep alert for modifications within the enterprise and never stay overly assured that it might probably proceed to pay out regular dividends.Resilience and stability are extra importantRather than go for top yield corporations, a give attention to resilience and stability must be extra essential issues.In that vein, well-managed REITs ought to definitely have a place in each investor’s portfolio.After my missteps with FSLT and Kingsmen, I proceeded to buy items of Frasers Logistics and Commercial Trust (SGX: BUOU) and Keppel DC REIT (SGX: AJBU) in 2017.The former had a respected actual property big, Frasers Property Limited (SGX: TQ5) as a sponsor, whereas Keppel DC REIT’s sponsor was a unit of Keppel Corporation Limited (SGX: BN4).Suffice to say these two REITs have supplied not simply steadily rising dividends, however peace of thoughts as properly.Yet one other place to search for regular dividend payers are blue-chips companies that may climate a downturn.My buy of Singapore Exchange Limited (SGX: S68), or SGX, in 2018 noticed me shopping for the corporate at a 4% dividend yield.Although the headline yield was not excessive, the group has steadily grown its enterprise through the years and has additionally bumped up its quarterly dividend from S$0.075 to S$0.08 regardless of the pandemic.So, along with a rising dividend yield on my price, I’ve additionally loved capital appreciation as properly.Regular and constant capital injectionsBut build up a sturdy dividend portfolio isn’t nearly deciding on good shares.The secret’s to make common capital injections into these identical dividend-paying shares.That approach, you may slowly develop your dividend stream over time.The magic of compounding happens whenever you reinvest the dividends you obtain again into the identical corporations, thus rising your stream of passive earnings.It is a course of that may take years, so one of the best time to begin investing is — now.Get Smart: Free up your timeWealth is not only measured by the {dollars} in your checking account.The extra earnings from dividend shares additionally offers you with extra freedom to pursue your personal pursuits.When I first graduated and entered the workforce, I spent round three days a week giving tuition to earn extra earnings.The further $500 to $800 a month allowed me to spice up my financial savings and supplemented my earnings as I labored my approach slowly up the company ladder.I began my funding journey in 2005 and by the point 2009 rolled alongside, I used to be receiving round $6,000 a yr in dividends, which labored out to be a mean of $500 a month.Armed with this extra money stream, I reduce on my tuition and freed up extra time to spend with my family members.You can do the identical, too.After all, essentially the most worthwhile useful resource on the planet will not be cash, however your time.As you develop your funding portfolio alongside together with your dividend stream, the stream of passive earnings helps liberate your time to interact in different pursuits.And that, to me, is why a sturdy dividend funding portfolio is value pursuing.Note: An earlier model of this text appeared in The Business Times.We discovered 5 SGX shares that may pay you dividends for all times. Find out their names, and why no less than one of them ought to sit in your portfolio in our particular FREE report. Click right here to obtain the report now.Follow us on Facebook and Telegram for the most recent investing information and analyses!Disclaimer: Royston Yang owns shares of DBS Group, Keppel DC REIT and Frasers Logistics & Commercial Trust.The put up How You Can Build a Robust Portfolio of Dividend Stocks appeared first on The Smart Investor.

Recommended For You