Help – Dividend Income Portfolio


The Dividend Income Portfolio is a subscriber-only “demonstration” portfolio, that I use to illustrate the practical application of dividend investing and dividend-income growth investing principles.

The Portfolio contains real money and actual shareholdings. It is in fact part of my overall retirement portfolio of assets.

Introduction

In the course of January 2011, I sold all my stocks and shares in a previous stocks and shares ISA and transferred £70,000+ cash into a new ISA at TD Waterhouse.

In addition, I transferred a small number of shares in Vodafone and GSK Plc – two high quality dividend paying companies previously purchased at historically undervalued levels.

The Dividend Income Portfolio was formerly launched in February, 2011, with a starting value of £76,893, including the then value of shares in Vodafone and GSK Plc. No new cash has been added since its creation except for dividends received.

Investment goal

The overall goal of the Portfolio is to attain a yield on cost of at least 10 per cent within 10 years of the portfolio’s creation in 2011.

More specifically, my goal is to generate at least £8,000 (and growing) in tax free annual dividend income by 2017. I anticipate starting to draw tax free income soon thereafter.

In order to achieve my investment goal I intent to invest in up to 25 dividend paying companies, preferably in equal portions, and, initially, reinvest dividends once they have topped £1,000.

Investment focus

Our investment focus is on building a well diversified portfolio of high quality, above-average yielding companies, purchased at historically undervalued levels, which are able to increase dividend payments over time; preferably well above the annual inflation rate.

We intend to use a pound cost averaging strategy in order to purchase additional shares in companies which we already own in the Dividend Income Portfolio but only when they are trading at or near historic undervalued share prices, which could be above the initial purchase price.

Notwithstanding our aim to use a proper diversification strategy in order to reduce overall risk, when market conditions allow us to build a ‘substantial’ position in one or more high quality dividend paying companies we would purchase additional shares in such companies under the provision that not any single investee company would represent more than then 10 per cent of the overall portfolio, including cash, if any.

Portfolio management

Our portfolio management strategy is very much based on a “buy and monitor” approach. Once shares have been purchased at or near historic undervalued levels, capital values are very much a secondary concern to me, until the moment that they start to encroach on historically overvalued levels.

We may decide to sell when any of our Portfolio holdings are near, at or past their historically overvalued levels and proceeds may be kept in cash or re-invested in other, similar, high quality dividend paying companies then historically undervalued.

We intend to perform annual Portfolio Reviews to be released by the end of January, each year. The latest Review can be accessed Here.

During our Reviews we make an attempt to calculate the dividends that we may receive from the then current Portfolio for the current calendar year.

Limit buy and sell orders

The Dividend Income Portfolio uses limit buy and sell orders to operate the portfolio. 24 hours before a limit order is been implemented we disseminate an email Alert to subscribers and publish the order in Dividend Income News. Click Here to access our current limit orders.

Limit orders allow investors to specify the price that they are willing to pay for, or to sell at, a security, such as a share. Once a limit buy-order is implemented your stockbroker buys the shares automatically when the share hits the price you want to pay for it.

A limit buy order is an order to purchase a share at or below a specific price, which in our case is normally lower than the current market price.

By using a buy limit order, the investor is guaranteed to pay that price or even better, meaning that the investor will pay the specified price or less for the purchase of the security. While the price is guaranteed, the filling of the order is not. In other words, if the specified price is never met, the order will not be filled.

Applying limit buy orders allows investors’ share trading to be put on ‘auto-pilot’ and are especially useful for those investors who can not watch the markets all the time.

What next?

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