Welcome back to Part Two the GKT dividend series. If you missed part one, click here. Today let’s discuss the GKT process of building a dividend yielding portfolio with Dividend Aristocrats.
I’ll share my simple method for selecting stocks for my dividend portfolio. I say it all the time, and I am living proof you don’t have to make the stock market complicated unless you just want to!
Let me start off with a friendly reminder, when creating a passive income stream, my focus is on finding the optimal yield, not the highest yield it’s so tempting to just look at stocks that pay 10%, but that’s not the GKT way.
Stock Selection: Dividend Aristocrats
My dividend portfolio is mainly created from the list of Dividend Aristocrats (the list is free, never pay for it!) I review the list (most of the company I already know, some I need to google) I want to know at the most basic level what does the company do, what sector are they in. This might take time the first time around, but this list doesn’t change all that much. I don't pay that much attention to all the analysis people provide, but it's entertainment at minimum.
When I add the stocks I put them under the appropriate sector on my spreadsheet (remember to separate your list by sector!) I am building a little ‘cheat sheet’ that will last for years. So even if the stock is sitting right at resistance today (meaning it’s probably too high to buy now), it still goes on my sheet. It has the following columns:
- the stock ticker
- price per share
- the yearly dividend yield
- where the stock stands compared to its all-time high and low (I use my own
scale for this 1-10)
- An idea if the stock is at support or resistance- I just use S, R, or M (middle) Just
make your own system for is this a buy, meh, or sell.
Everyone needs to make their own criteria about what stocks they want to own. I like quality companies, companies that I understand what they do, they are boring companies. This is not a get rich quick strategy. This is hey let me start replacing my paycheck at work strategy
Once I’ve gone through the whole list I review the spreadsheet to build a diversified portfolio. I’m aiming to select a minimum of 5 stocks I like the most right this minute. This means,
- the 5 stocks are in different sectors (it’s ok for 2 to be in the same sector if you feel
like there is value),
- they are at support levels, or moving sideways, (not at all time highs- unless you
have closer to 10 stocks in your portfolio), and they pay a dividend yield I am
comfortable with. (this is my strategy, you can make your own! I encourage you to make
this your own!)
Here's a pro tip: aim for owning 100 shares of each stock. However, don't feel disheartened if you can't just yet. Remember, the journey of a thousand miles begins with a single step.
Even if you start with five shares or just on share, you're still starting! You are making money in your sleep even if you just own 1 share.
My dividend portfolio occasionally scales up to 15 different stocks, and I'll often add more in a sector I perceive as undervalued or if a particular stock is low and I believe it could rise depending on the market cycle we discussed last week.
The key here is diversification. When market rotation happens if one sector gets hit, the money generally flows into another sector. So one stock gets hit, others should hold their ground or even go up. Even in a bear market, when all stocks typically go down, don't panic. Stick with your strategy, keep collecting dividends, and allow the share price to recover in due course. Remember dividend aristocrats have been around for a long time they have seen many bear markets!
It's really easy to get caught up too much in dividend yield, I know this portfolio is all about dividend yields, but if you use the strategy the GKT way you are also looking to get share appreciation and once you have 100 shares of each of the 5 stocks, you will start using premium selling (covered calls) to actually bring in more money. You will also be selling some of these stocks for another 10-20% profit. So yeah yields matter, but we’re also using smarter strategies to make even more passive income
One word of caution: beware of stocks that offer exceptionally high dividend yields. These are often companies facing issues and use a high yield to entice buyers. It's okay to have a couple of high-yield stocks in your portfolio, but be aware of the risks they could pose. I’ve actually done well investing in a couple extremely high yield stocks, but realize the risk. If I can build a portfolio that can yield around 6-8% in dividends that’s great.
So with this strategy, I buy stocks low, hold them, and collect dividends. I make my purchases off support and sell the shares, or I sell covered calls (if I own at least 100 shares) into resistance. It might seem too simple to be true, but believe me, it works.
You might be saying to yourself I don’t have time to know when a stock hits these levels, that’s where alerts come in. A crucial aspect of efficient trading is setting up alerts at support and resistance! Doing this is a game-changer that allows you to stay in the loop without needing to monitor stocks daily.
You can use your brokerage platform to set alerts for every stock you included in your spreadsheet. I set alerts for when a stock hits support (to potentially buy) or resistance (to consider selling). This approach lets me know precisely when action might be needed, and frees up my time for other activities, or simply exploring new investment avenues. Remember, efficient trading is as much about time management as it is about picking the right stocks.
While this strategy is straightforward, I also use some more complex options strategies for dividend stocks which I'll share with you in our next blog! But remember I still keep that relatively simple as well. Stay tuned for the next article and as always happy trading Good Kids!
I'm not a financial advisor, I'm not a trained professional. This article is for educational purposes, it is not trading advice.