How To Build An Optimal Dividend Portfolio

Building a successful dividend portfolio has significant benefits over the long-term. I LOVE the prospect of investing in high-quality stocks at reasonable valuations and getting PAID to wait until valuations have approached market value. By building an optimal dividend portfolio, you combine both the prospects of residual income and long-term capital appreciation through an increase in the share price in one single strategy. I call this the dGARP (or Dividend Growth at a Reasonable Price) strategy. To have an optimal dividend portfolio, you need a mix of dividend growth, blue chip, value and high yield stocks under one umbrella.

How to Build an Optimal Dividend Portfolio

Building an optimal dividend portfolio requires a diverse skill set, you need to understand a variety of business models and valuations to make your portfolio diverse, stable and successful.

First, use our set of criteria to find undervalued dividend growth stocks. This will help narrow down a list of high-quality dividend stocks to choose from or to evaluate further. After you input all of the identified criteria, you should have a list of stocks no more than 20-40 dividend growth stocks to evaluate further. I like to sort my list of stocks by lowest Price to Earnings ratio just to give me an understanding of the lowest priced stocks. From there, you should invest in 4 high quality dividend stocks after you have done the following checklist:

You understand their business model. How do they make money?

You’ve done research on the industries the dividend stock operates in. Is the industry forecasted to grow? What is the company’s market share?

Do you genuinely like the company’s products? Do people like the product and company?

What about international exposure?

To diversify your dividend portfolio further, you should seek out international dividend stocks or dividend growth funds. You may be able to screen for a few international dividend stocks through the criteria above. However, a good way to get diversified international dividend exposure is to seek out a global dividend growth fund. With the rise of Exchange Traded Funds (ETFs), it is now easier than ever to get diversified exposure to a basket of stocks or an index at a very low cost. Here are a couple of my favorite international dividend growth funds that feature ample liquidity and reasonable expense ratios.