How To Build A Passive Dividend Portfolio

by Ron Haynes

Building a dividend portfolio is like being a landlord without the hassle. Considering that investing in real estate and investing in dividend stocks both have income potential and capital appreciation potential, they are similar. The good thing about creating a dividend portfolio is that you won’t be awakened at 3AM Christmas morning by a tenant with a leaky toilet.

Building a passive dividend portfolio

Let’s first get one thing out of the way, few investments are truly passive. Even a dividend portfolio has to be rebalanced, reviewed, and re-evaluated on a regular basis to insure top performance. More on that later.

1. The first step in building a passive dividend portfolio is the most obvious but it’s the most neglected: you have to set up a brokerage account. Without one, reading this article is only a mental exercise and ACTION is what is needed. So, set up your brokerage account at:

None of these online brokerages requires more than $1,000 to set up your account and a few require no money up front! What are you waiting for?

2. Your second step is to purchase quality dividend stocks. Make sure:

  • The stocks are from different types of business’ or sectors. You might purchase shares of an energy company, a financial company, a technology company, a retail company, and/or a manufacturing company. Having shares of different types of companies insures that your risk is spread out.
  • These companies must have increased their dividends for the past several years. Increasing dividends is the key. Not level – increasing.
  • These companies are mature, dependable, and financially able to maintain their dividend payouts. The more history a company has the better.

Where do you find these stocks? Use a stock screener (read Use An Automatic Filter to Screen Your Investments) or hang out and read great sites like The Dividend Guy Blog or Dividend Growth Investor.

3. Put your saving and investing on auto-pilot. To build a large, strong passive portfolio, it will be important to put as much cash into it as you can and by setting things on auto-pilot, you’ll do just that. You don’t want to ever force yourself to choose between spending and investing so make it as automatic as possible. One commonly overlooked source of investing income is the checking account rewards program at PerkStreet.

As your income increases over time or as cash is freed up from paying down your debt (read Should You Invest While You’re In Debt), increase the amount you consistently put into your savings account.

4. Reinvest all your dividends. Don’t even think about spending them. Set up all of your share purchases to automatically reinvest those dividends, putting the magical effect of compounding to work for you.

5. Every time your savings reaches $1,000 buy more shares. Regularly set aside cash into your savings account and then transfer it to your brokerage account. Many accounts can be set up to automatically transfer a certain amount when your balance reaches a pre-determined level. Use this automatic feature to make certain your investable balance grows and grows.

Are you uncomfortable making investment decisions alone?
Let WiserAdvisor match you with a screened, highly qualified, fee-only financial advisor. Click HERE for details.

6. Review your portfolio of investments every two to four months. Share prices can swing wildly so don’t check too often if you can’t handle the emotional roller-coaster, check your portfolio every four months instead of two. It’s hard not to check on your shares I’ll readily admit, but it’s critical that you not get in and out of stock positions over and over. Even using a discount broker, if you churn your own portfolio enough, you’ll lose your shirt in commissions.

What should you check for?

  • That the company is doing well financially (more on that in a future posting)
  • That the company’s sales are steadily increasing
  • That the company’s executive management team is behaving well (Google them all)
  • That the dividend outlook is favorable

What should you do if the company appears shaky? First double check everything. You don’t want to allow yourself to make an emotional decision based on incorrect information. Then evaluate if the conditions causing you concern are temporary or permanent, if the company has made some expenditures that will benefit you in the future, or if the company is in for a long period of decline and your dividend payments and capital appreciation could suffer as a result.

Increase your investments as your income increases

As your income increases from raises or bonuses at work, invest at least 50% of the after-tax increase. It isn’t easy. I know, but it’s critical to building your portfolio into a money-producing machine that will support you long term.

About the author

Ron Haynes has written 988 articles on The Wisdom Journal.


The founder and editor of The Wisdom Journal in 2007, Ron has worked in banking, distribution, retail, and upper management for companies ranging in size from small startups to multi-billion dollar corporations. He graduated Suma Cum Laude from a top MBA program and currently is a Human Resources and Management consultant, helping companies know how employees will behave in varying situations and what motivates them to action, assisting firms in identifying top talent, and coaching managers and employees on how to better communicate and make the workplace MUCH more enjoyable. If you'd like help in these areas, contact Ron using the contact form at the top of this page or at 870-761-7881.