I have found through years of experience that having a portfolio strategy is the most crucial factor in determining your investment success. It’s very parallel to when I was an Air Force pilot. We never took off without first making and briefing a detailed mission plan. During the actual flight missions, it was not uncommon to deviate from the planned route and tactics, but the mission plan always gave us a guide to get back to so the mission would be a success.

Your portfolio plan will be your guide to high-yield investing success. You can be flexible with your plan, too. Every investor has a different situation and different goals. Your plan will change over time, and the steps you take to stay on your plan can be flexible.

The other side is that being as rigorous as possible to follow the portfolio plan you develop makes it easier to put your money to work without letting emotions get in the way. You will find that in the Dividend Hunter monthly newsletters, I spend a lot of time on portfolio strategies rather than discussing individual stocks.

In many respects, portfolio management is more important for dividend investors than individual stock selections, especially for long term results.

The Dividend Hunter recommendations list provides the stock picks to build an income stream.

In this report, I cover strategies, techniques, and tips to manage your stock investment portfolio. Some of these strategies and methods may be beneficial to your portfolio, while others might not be applicable. Only you know the totality of your personal finances and goals and can make your own decisions. What I’m sharing with you is demonstrative of how I see subscribers getting the most from the Dividend Hunter recommendations list.

Income Stock Portfolio Diversification

While my research and experience have driven me to a strategy that focuses on high yield stocks, a portfolio of Dividend Hunter stocks is not diversified in the traditional sense.

Here are some of the benefits of an income stock focus:

  • Dividends are real cash returns. They repeat and often grow. They do not disappear when the stock market goes down.
  • Reinvesting dividends provides robust compound growth of the income stream.
  • A dividend income stream can be used as a living expenses income without selling assets to support your lifestyle.
  • Investing for income eliminates or reduces the need to time markets for buying and selling.
  • An 8% plus yield with compounding will produce better results than most investment advisory services.

Basic Portfolio Rules

  • Strive to own all the current stocks on the Dividend Hunter recommendations list. I select stocks to provide as much diversification as possible in the high-yield stock universe.
  • Track your quarterly dividend earnings. Your periodic investment income is the best metric with which to evaluate your results. (It will also eliminate a lot of worry out of your life!)
  • Be aware that your brokerage account probably does not include dividends in return calculations.
  • Remember that you are investing for the long term. Years and decades. Reacting to short term stock market swings is not part of your plan!
  • Have a cash or income cushion outside of your long term investment portfolio.
  • Put together a written outline of how you want to balance your income stock portfolio. Develop a plan that works for you to reach your goals. Here are two basic ones.
  • Own an equal dollar amount of each recommended investment. This simple approach is how I manage and build my Dividend Hunter tracking account.
  • Determine separate weightings for each of the investment categories on the Dividend Hunter recommendations list. The categories let you skew your portfolio towards more conservative or more aggressive.

Equal Weight Strategy

  • Own an equal dollar amount of each Dividend Hunter recommended stock. This is a straightforward approach.
  • The strategy makes it obvious into which stocks you want to make additional investments.
  • The risk of bad stock news is spread equally.
  • The potential for good news to help a share price is also equally spread.
  • For example, in early 2018, Macquerie Infrastructure Corporation (MIC) reduced its dividend by 30%. In a 22 equally balanced stock portfolio, that results in a 1.3% decrease in income. A shortfall quickly made up by reinvestment and dividend increases. Note: MIC is no longer a recommended Dividend Hunter investment.

Risk-Adjusted Strategy

I divide the current Dividend Hunter recommendations list into three categories. The categories relate to the safety and reliability of dividend payments from the recommended investments. I made significant changes to the categories following the effects of the COVID crisis on individual dividend payments. Here is a description of each of the three categories.

  • Dividends Sustained Through COVID

These are the stocks that did not reduce dividend rates when the COVID crisis hit the markets and business operations. The fact that these companies took care of investors through the crash says a lot. There remain a few companies on the list that face challenges in their business operations. I will watch closely and keep you up to date.

  • Dividends Cut Due to COVID or Variable Dividends

A lot is going on in this shortlist of investments. For example, while the InfraCap MLP ETF (AMZA) cut its dividend in March, the monthly payout increased in June. With the dividend cuts in the past and one quarter of earnings news to build on, I now view this group as good prospects for great future total returns. As they start to grow dividend payments again, the share price will appreciate. The stocks on this list are more likely to increase dividends than they are to announce further cuts.

  • Fixed Income Investments

Adding individual preferred stocks was one of my signature moves during the height of the crisis. The individual preferred stocks plus the Virtus InfraCap U.S. Preferred Stock ETF (PFFA) offer a high degree of dividend safety with very attractive yields. My lesson from the recent market crash is that an income-focused portfolio should own this type of income investment. I find it ideal to have 20% to 30 of a portfolio spread across the 10 investments in this group. Your personal circumstances may vary from this of course.

Managing Investments and Dividend Reinvestments

You will achieve satisfying returns from a dividend-focused investment strategy through the practice of regular additional investments.

  • Plan to retain a portion of your dividend earnings to buy additional shares. Do not spend 100% of your dividend income.
  • If you can, reinvesting 100% of dividend earnings, plus possibly adding more capital, will result in compound income growth.
  • Use your personal portfolio balance strategy to guide in which stocks to make additional investments.
  • If you chose to be flexible with your own rules, use good judgment, and stay focused on your long term goals.

Handling Market Downturns and Upswings

Stock market downturns are emotionally challenging and make us wonder if our strategies are working. You also should have a plan for when one of your stocks takes off and goes up in value – yes, it will happen.

  • Stock markets swing. When the market goes up, we are fine. When it falls, you need to practice investment discipline and do not give in to fear. That is why we focus on building an income stream.
  • We all know, “buy low and sell high.” Easier said than done. Regular reinvestment of dividends makes it automatic.
  • Your portfolio management plan should be your guide in downturns.
  • Understand that individual high yield stocks have volatile share prices. Heck, most of the time, all stocks have volatile share prices.

Investing in the COVID Era

The COVID outbreak and subsequent pandemic in early 2020 were devastating to high-yield sector values. I recommended significant portfolio changes to Dividend Hunter investors. The market crash produced opportunities as well as forcing us to make changes due to dividend reductions.

The most significant ongoing opportunity comes from the great values and yields available in the preferred stocks universe. Preferred stocks provide a much higher level of dividend safety compared to common stock dividends. Yet preferred share prices are also down, letting investors lock in excellent current yields.

For someone with a lump sum of capital to commit as a new Dividend Hunter, consider immediately allocating 30% to 35% of the sum across the fixed income/preferred stock investments. For the other categories, I suggest starting with smaller initial investments and build up the position over time. The current market volatility makes it likely that you will be able to average down from your initial share costs.

Some Additional Tips

  • When one of your stocks falls sharply, wait before jumping in to buy more shares. The first fall is often followed by further decline.
  • You won’t pick the absolute bottom when you average down. Don’t worry about trying to.
  • “Not only do studies show that long-term underperformers tend to be future outperformers, but three years simply isn’t a lot of time.”
  • It’s fine to get overweight in a stock. Once that happens, focus on building up the values of your other holdings.
  • With big winners, think about partial sales and invest the proceeds in higher-yield stocks in your portfolio.

Final Thoughts

I do not remember where I found this quote, but it does a great job of cutting through the noise and challenges of investing in the current environment:

“Technology, it would appear, has de-evolutionized us. Evolution should make us more long-term because our thinking, if more evolved, our science is more evolved, and as such, our lives are longer. Instead, modern humans focus on headlines that have little to do with an unpredictable future and panic out at the time when they absolutely shouldn’t. What is remarkable to me is that awareness of this does not change behavior. Just because we know what we are doing is wrong doesn’t mean we stop doing it. And so, the cycle of buying high and selling low persists as proven by the overwhelming evidence of it when looking at investor returns.”

As a Dividend Hunter, I expect you not to be a follower of the herd mentality described in the quote.

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