From Zero to Launch

Grow Your Monster Dividends Issue 1

Hey, Willie here!

It’s been a packed week. I’m busy prepping for my first upcoming 2-Week Build Your Monster Dividend Portfolio Investing Bootcamp. A huge turnout and very nervous. But I'm really excited for our first live session next week.

On a side note, readers have recently written to me about my recent post on How I Invest for Dividends. Last year, I’ve started a smaller portfolio (to scratch my “itchy backside”) dedicated to a dividend growth strategy.

The strategy is simple:

1. Accumulate good dividend growers with a durable economic moat at a reasonable price.
2. Sit on my hands and do nothing.

In my guide, I wrote how to build a dividend growth portfolio from scratch. I shared why tracking the 1-year performance is an important milestone. And why ANY past performance isn’t a guarantee of future performance.

I want to caution you: a dividend growth strategy is extremely boring. You aren't aiming the best returns, nor quick "by tomorrow night" returns. This smaller portfolio was up 24% since last year.

I know many professional fund manager and private investor friends who have done way, way better than me. I mean, if you bought high growth tech stocks last year, your performance would have blown through the roof.

Aim for Long-Term Diversification

Now, most of my stock positions are equally distributed in the portfolio. When you're going from zero to launch, it's perfectly normal to be heavily weighted in a certain stock or sector at the start. For instance, You can see how I've started technology heavy but have since diversified across to consumers, financials and telecommunications.

Over the long run, you need to diversify these positions as you add more capital. Each month, I plan to deploy 5-10% of my portfolio picking stocks from my watchlist. I’ll add stocks I’d owned the smallest dollar amount to build the position.

I've started off with buying just 3 stocks. Then 10 stocks. Right now, this smaller portfolio owns 18 stocks. Eventually I plan to own 30 solid dividend payers.

Over the past month, I've been adding more beaten down positions from China. At this point, it's either you love or hate China stocks. For me? I've always had a soft-spot for the world's second largest economy (having used to work and study there before).

I've added Link REIT, Yum China and tech giants like Tencent. While shares of China companies have been ravaged by the huge sell-off, I'm not the least worried -- so long I diversify well, and I buy into their long-term earning power is what matters.

And that's also the whole idea of a dividend growth portfolio -- buy companies that grow dividends.

While I may not see a sudden gush of dividends immediately, compounding will take effect as we invest along the way.

One Common Investing Question

One common question I’ve got is: Willie, will a dividend growth strategy work for investors with a smaller capital and could only save $1-2k a month to invest?

My answer: yes.

Let me explain.

Capital: $10k + invest your savings

The thing is, I believe you can achieve your own version of financial independence with long-term dividend investing.

But I think the first thing you need to get done is to think about how you can increase your savings. This means, work a budget to mercilessly cut unnecessary spending. And track every dollar of cash flow.

I know this isn't new, but not many think about this deeply. You have $10,000 capital to start investing. By the end of 20 years, if you invest your capital at an average return of 10% per year, it will only give you $67,275.

I know, this doesn’t look like much.

But if you’d invest your extra savings of $1k per month ($12k per year) at that same average returns, it’s going to compound your capital much harder – $754,575 at the end of 20 years.

Then, add in dividend payout and reinvestments, this is going to sky rocket your income in the long-term.

When you start saving that extra dollar, the magic of compounding kicks in.

Now, I want to be clear here: I'm not going to achieve a 10% return immediately. But in 10 years, I expect my portfolio to compound at an average 10% per year. By Rule of 72, my dividends should also more than double in seven years. Which means, if I pick a stock that yields 3%, its yield will hit 6% in less than ten years.

Some years your performance will go up. Some years your performance will go down.

And working toward a milestone, like achieving your first $50k, then $100k, then $200k and $500k helps motivate you to keep going.

I know it sounds cliche, but investing is a marathon and not a sprint.

The 95% of Investors' Problem

Of course, everyone’s circumstances are different (and investing is not a race with others). Sometimes in life, we aren’t dealt the cards we want. Some win the ovarian lottery. Some win the million dollar lottery. I wasn’t born with these lotteries.

I grew up in a middle-income family. Though I was lucky to have found a job that pays not too bad. That allowed me to save aggressively.

The problem is 95% of investors starting out don’t have that mental discipline to start saving. When I started working, I noticed friends and colleagues' lifestyles went up as their pay went up – fancy watches, house upgrades, big cars and so on.

I find it’s simpler to start saving, learn the fundamentals of investing, diversify and compound for the long-term. We might not turn into eight-figures millionaires, but we can achieve our own financial goals.

My strategy if I were to start over, and with a limited budget would be to first focus on mercilessly reducing expenses, saving up. I would also try ways to increase my salary income.

What we need is not a magic pill for getting rich quick but to have the discipline and persistence to save hard and invest harder. We might look like oddballs with other people (since we don't spend much) but I feel it's a better way to live life and enjoy the fruits of our labour later on.

Don't you agree?

Sometimes, investing can be simple.

Willie Keng, CFA

Founder, dividendtitan.com

P.S. I plan to write a weekly newsletter to document this journey of my smaller portfolio. Do hit "Subscribe" to Grow Your Monster Dividends to follow my investing journey.

#dividendgrowthinvesting #getstarted #investing