There are eleven stocks in the Royal Dividends portfolio, what I call the Portfolio for the Ages. Let’s look at the portfolio and note some of the characteristics it possesses:
- The dividend yield is at a very significant level of 4.2%, well above that of the S&P 500 at 1.77%.
- There is exposure to every sector.
- Each position is nearly equally weighted.
- The portfolio beta of 0.88 is less than that of the S&P 500.
- Nine of the eleven stocks are Dividend Kings.
- The dollar-weighted average dividend increase streak of the portfolio is 49.98 years.
So, what’s next?
Invest!
At my first job out of college, it was not uncommon for me and my co-workers to discuss what it was we would rather do for a living. In those days, my friend Gary said that he would like one day to be able to respond, “What do I do? I invest.” He did end up working at a venture capitalist in Manhattan, but I don’t think that’s what he had in mind. I believe that what he really wanted to do was invest his own wealth and live off the returns, without having to work for someone else.
The Royal Dividends portfolio has been built to withstand the test of time. It’s made up of veteran companies with extraordinary dividend track records, is balanced across all the sectors, promises to be less volatile than the broader market, and should deliver capital gains along with significant income. I truly believe this portfolio, as it exists right now, could go untouched and unmonitored indefinitely. But real, transformative wealth comes when you:
- Save all the money you can
- Buy the stocks of great businesses that pay dividends, and
- Reinvest those dividends
It is an endless cycle. And so, what do we do from here? We invest.
We invest our savings. We invest our dividends. We invest capital gains. Sales on eBay? Invest it. Salary increase? Invest it. Tax refund? Invest it.
The Plan
Let’s put to work everything discussed on this site up until now, and invest according to the following plan:
- Each week, using the Sure Dividend Research Database, I will extract important data about the 70 stocks that comprise the Royal Dividend universe. These are the 45 Dividend Kings and the 25 Royal Heirs that ensure each of the eleven sectors have at least five stocks in the Empire from which I will select companies to invest in. The Royal Heirs have the longest dividend increase streaks (under 50 years) in their respective sectors. To date, two of the Royal Heirs, QCOM and TDS, have become Elected Monarchs.
- From the universe of 70 stocks, I will eliminate the companies with the following characteristics:
- Price >= Fair Value
- Dividend Yield < Dividend Yield of the S&P 500 Index
- Expected Total Return (annualized) < 10%
- The remaining stocks will be sorted on Expected Total Return in descending order. The Top Ten will be the stocks considered most worthy of investment.
- The Top Ten will be ranked to favor Dividend Kings first, Elected Monarchs second, and remaining stocks least.
- $250 will be used to purchase shares of the stock with the lowest account value among those currently held in the portfolio. If none of the stocks currently held in the portfolio appear in the Top Ten, we will purchase shares of the top stock. The purchase will be subject to two constraints:
- A stock purchase cannot push the portfolio weight for the stock over (3/n) x 100%, where n is the number of stocks in the portfolio. For example, if the portfolio has 11 stocks, I will not purchase a stock that would put its portfolio weight at greater than 27.3%. If this is the case, I will move down the list to the next eligible stock. This constraint will ensure that no one stock represents three times as much as it would in an equally weighted portfolio. We don’t want to be over-exposed to the performance of any one company.
- A stock purchase cannot push the stock’s sector weight over 30%. If this is the case, I will move down to the next eligible stock from a different sector. This ensures we are not overly exposed to any one sector.
- Investing $250 per week amounts to $13,000 per year. However, as the portfolio grows, so will the dividends. When the dividends reach $250, the purchase amount to be deployed for the weekly purchase would be $500. The following week, the investment amount will return to $250 until the dividends grow to $250 again. The same logic will apply to any capital gains made from a sale.
- The weekly investment amount will be split among two or more companies if a constraint can be avoided by doing so.
- The number of shares purchased will be rounded up to the nearest integer to ensure that a minimum of $250 is invested.
- If one share of a stock were to cost $500 or more, the following week’s purchase will be skipped. If the price were $750, the following two weeks would be skipped, etc.
- The Top Ten will be redefined (which would amount to expansion) in the event the sector constraint repeatedly prevents a purchase (will happen if the Top Ten is dominated by a sector).