Dividend Portfolio Tips Using Monthly Dividend Stocks

Build The Best Dividend Portfolio From Stocks That Pay Monthly Dividends

Today’s topic: how to build a dividend portfolio utilizing monthly dividend stocks.

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So, I’m going to show you 7 steps to build an investment portfolio from stocks paying monthly dividends.  For an overview, let’s first look at the 7 steps.

How To Build A Dividend Portfolio With Monthly Dividend Stocks: 7 Step Plan

  1. Diversify the holdings in your dividend stock portfolio
  2. Ensure your holdings represent a mix of different industries
  3. Include multiple asset classes in your dividend portfolio
  4. Select monthly dividend stocks for your dividend-paying investments
  5. Build your dividend stock portfolio using smart asset allocation
  6. Reinvest the dividends from your portfolio
  7. Hold the stocks in your dividend portfolio for the long-term

But before we dig into each of the 7 steps, let’s define a dividend portfolio.  And the exact type of dividend stock portfolio we are going to discuss today.

What Is A Dividend Portfolio?

First of all, a dividend portfolio is a group of dividend stocks owned by an investor. Furthermore, dividend stocks are investment securities issued by a corporation.  Finally, the management of a corporation issuing the stock chooses to pay shareholders regular dividends.

There are multiple types of dividend stock portfolios.  Meaning every dividend income portfolio can have different characteristics.

For example, some portfolios focus on high dividend yield stocks.  While other dividend income portfolios consist of stocks with rapidly increasing dividends.  Sometimes this is referred to as a dividend growth portfolio.

Even more, a dividend investing portfolio may be focused on monthly dividend stocks.  Rather than, stocks that pay dividends less frequently.

Often, the traits of a dividend income portfolio are not “black and white”. In other words, the attributes are not an “either-or” proposition.

This means a dividend income portfolio can hold high yield dividend stocks.  And also own dividend growth stocks.

Furthermore, some of the stocks in a dividend investing portfolio may pay dividends monthly.  While other stocks pay dividends each quarter. Or, even less frequently.

Finally, a dividend stock portfolio may include holdings besides individual stocks.  For example, exchange-traded funds (ETFs).

There are many choices when deciding what attributes to include in a dividend stock portfolio.  And, those decisions are up to the investor.

And this point leads us to our topic for today. How to build a dividend portfolio for monthly income.

Disclosure: At no cost to you, I may get commissions for purchases made through links in this post.

A Dividend Portfolio Consisting Of Monthly Dividend Stocks

Our focus today is on how to build a dividend portfolio of stocks that pay monthly dividends not quarterly.  In other words, each stock in today’s sample dividend portfolios will pay dividends every month of the year.

Why do we want to build a dividend investing portfolio like this?  Because many people desire a consistent stream of monthly dividends.

Let’s face the facts.  Are you investing in a dividend retirement portfolio? Do you want to use your dividends to pay living expenses now or in the future?

Well, last I checked, most of our bills are due monthly.  And it’s tough to be held to dividend stock payment patterns that don’t pay your bills on time!

To achieve wealth, you must manage your money wisely. And monthly dividends can help us with that goal.

Enough said!  Let’s go through the 7 steps on how to build a dividend portfolio. The examples will consist entirely of monthly dividend stocks.

Some of the steps apply no matter what type of dividend investing portfolio you want to build.  Those steps are 1, 2, 4, 6, and 7.

But, I have also included steps 3 and 5.  Why?  To help us become dividend achievers. And accomplish today’s goal of building a dividend portfolio entirely from monthly dividend stocks.

1. Diversify The Holdings In Your Dividend Stock Portfolio

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First of all, we want to buy stocks to reduce investment risk.  In this light, we are talking about the risks of individual securities. So, having enough dividend stocks is the key point.

In other words, we do not want 1 or 2 bad stocks to blow up our investments.  And cause large financial losses.  We will try to pick the best dividend stocks so this won’t happen.

But you never know.  Even great investors make mistakes.  And incur losses on individual stocks.

So how many dividend stocks are required?  First of all, 20-25 is a good rule to go by.

Academic research shows that less than 20 dividend stocks may not provide enough diversification. To reduce individual stock risk.

Own more than 25? Then the extra diversification benefits from each additional dividend stock are minimal.

But that research is based on investing in individual stocks only.  What if we add ETFs to our portfolio of dividend stocks?

First of all, by definition, we know that ETFs hold a collection of securities.  Often, hundreds of individual dividend-paying stocks at a time. Furthermore, 1, 2, or 3 well-selected dividend ETFs can achieve plenty of diversification.

This brings us to step 2 in our 7 step process of building a dividend portfolio utilizing monthly dividend stocks.  Let’s do it…

2. Ensure The Stock Holdings Represents A Mix Of Different Industries

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We now know that 20-25 individual stocks.  Or, 1-3 ETFs can provide us with adequate diversification.

However, this assumes that the ETFs or the stocks are diverse.  When I say diverse, I mean that the individual stocks or the stocks held by an ETF represent:

  1. Different size companies
  2. Operating in different industries
  3. From different sectors of the stock market

For example, consider what would happen if you formed a portfolio of stocks from 30 technology companies.  In this case, you might believe your portfolio is diversified.  But because these stocks have similar traits you are close to “having all of your eggs in 1 basket”.

Or, let’s say you bought 1 dividend-paying ETF that contained 100 stocks.  But all of those stocks were from the utility sector.  Once again, you might feel your portfolio is diversified.  When it is not.

Next, onto step 3.  This step is unique for most dividend stock investors.  But, it will serve us well in building a dividend portfolio from monthly dividend stocks.

3. Include Multiple Asset Classes In Your Dividend Stock Portfolio

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For our purposes, I what you to consider multiple asset classes. First of all, what are asset classes?

Asset classes are groupings of investments that share similar attributes.  Here are some examples of different asset classes:

  • Cash
  • Bonds
  • Preferred stocks
  • Common stocks
  • Commodities
  • Precious metals
  • Real estate

Furthermore, you may ask why multiple asset classes in the portfolio.  And, that’s a legitimate question. After all, we are supposed to be talking about dividend stocks for steady passive income.

So, here’s my thinking.  We are trying to build a dividend portfolio from monthly dividend stocks.

We want the income from the portfolio to be as secure as possible.  And insulated to a degree, from the risks and volatility of individual dividend stocks in the stock market.

Why?  Because the goal is monthly dividend income.  That income is going to pay our bills today.  Or, become a dividend retirement portfolio to pay our bills in the future.

And last I knew, our bills always come due.  And living expenses have to be funded from something.

Again, let’s not “put all our eggs in 1 basket”.  So, we want to use investments from several different asset classes.

I will show you how to do so next.  Because it’s time for selecting the monthly dividend stocks to invest in.

4. Select Monthly Dividend Stocks For Your Dividend-Paying Investments

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There is a lot that goes into finding the best dividend stocks. But today, I’m going to make dividend stock picking easy.

Do you remember today’s goal? To refresh your memory, we are laying out a plan to build a dividend portfolio from stocks that pay dividends monthly.

That means we need to pick some monthly dividend stocks for our portfolio.  Recently, I published this article: Monthly Dividend Stocks: 7 Picks For Regular Dividend Income.

Check out the article if you want a little stock analysis on any of these 7 stocks that pay dividends monthly.  You will learn a lot more about them individually and collectively.

So, for today, we have a ready-made list of stocks that pay dividends monthly.  And we are going to build our dividend portfolio examples from them.

7 Monthly Dividend Stocks

Here are the 7 stocks.

  • Realty Income (NYSE: O)
  • Stag Industrial (NYSE: STAG)
  • Main Street Capital (NYSE: MAIN)
  • Shaw Communications (NYSE: SJR)
  • Vanguard Total Bond Market ETF (NASDAQ: BND)
  • iShares Preferred and Income Securities ETF (NASDAQ: PFF)
  • Invesco S&P 500 High Dividend Low Volatility ETF (NYSEARCA: SPHD)

Note that the first 4 are individual dividend-paying stocks.  While the last 3, are monthly dividend ETFs.

Next up, we are ready to construct our dividend portfolio examples.  Using these 7 monthly dividend stocks.  First, we must discuss asset allocation.

5. Build Your Dividend Portfolio Using Smart Asset Allocation

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First of all, what is asset allocation?  Well, an investor tries to allocate their assets to manage investment risk. They do so by dividing their assets among different investment types.

We are going to use an old rule of thumb to construct our dividend portfolio examples.  That rule says to take 100 and subtract your age.  Then take the result as a percentage.

Put that percentage of your assets in stocks.  The rest should go to bonds.

For today’s dividend portfolio examples, we will assume a 30-year-old investor.  That means 70% of the investment value will be invested in stocks. And 30% will be invested in bonds.

You may have noticed that a preferred dividend stock ETF is included in the 7 monthly dividend stocks list.  Preferred stocks are hybrid securities.  They include a mix of common stock and bond characteristics. For our purposes today, I’m going to shoot for 10% of our stock allocation to go to preferred stocks.

Let’s see what the dividend portfolio examples might look like next.  Yours will probably be different depending on your age.  And the characteristics you desire for your dividend stock portfolio.

But these examples should give you an idea of how to think about it.

Dividend Portfolio Example 1: Stocks And ETFs

In this example, our 30-year-old investor has decided to invest in all of the 7 stocks paying monthly dividends.  Her portfolio looks like this:

Table 1: Model Dividend Portfolio Utilizing Both Stocks And ETFs

Monthly Dividend StockYieldAllocation
Realty Income4.8%5%
Stag Industrial4.55
Main Steet Capital8.35
Shaw Communications5.05
Vanguard BND ETF2.230
iShares PFF ETF5.410
Invesco SPHD ETF5.340

Note in the table above each stock’s dividend yield percentage.  First of all, the yields are approximate as of the publication date of this article.  Be sure to check for the current dividend yield before investing.

Furthermore, dividend yields change daily.  They move in the opposite direction of the stock’s price.

Using the yields and allocation, I can calculate the portfolio’s weighted average dividend yield.  It is 4.5%.  That’s investing for an attractive dividend yield.  But let’s work with it a little more.

How To Make $100 A Month In Dividends

Knowing your dividend income portfolio’s yield will tell you how much you need to invest to make $100 in dividends every month.  Or, maybe your goal is to make $500 a month in dividends. Perhaps even more?

It doesn’t matter.  Just follow this process to calculate how much money you need to invest to achieve your monthly dividends goal.

To calculate the amount of investment required, first take $100 a month times 12 months.  That gives us $1,200 in annual dividend income.

Then take that $1,200 and divide it by your portfolios dividend yield.  4.5%, in this example.  Thus, $1,200 divided 4.5% which is .045 gives us about $26,666.

As a result, $26,666 is how much you will need to invest.  To make $100 a month in dividends from this dividend portfolio example.

Work the math with your numbers. No matter what your monthly dividend income goal is. You can calculate how much investment is required to hit that goal.

Let’s look at another example.  I won’t bore you with all the same calculations.  I just want to give you another way to think about investing in stocks that pay monthly dividends.

Dividend Portfolio Example 2: ETFs Only

This time, our investor does not want to own individual stocks.  Our 30-year-old young lady prefers building a monthly dividend ETF portfolio.  So this is where her investments and asset allocations fall.

Table 2: Model Dividend Portfolio Utilizing ETFs

Monthly Dividend StockAllocation
Vanguard BND ETF30
iShares PFF ETF10
Invesco SPHD ETF60

This dividend model ETF portfolio yields 4.4%.  It is almost the same as the first example.  So, it will take roughly the same amount of money to make $100 a month in dividends from this portfolio.

The big difference is we have eliminated the individual dividend stocks.  And allocated those assets to the Invesco monthly dividend ETF.

Because we have eliminated the individual stocks, this dividend ETF portfolio is more diversified. And slightly less risky.

This sample dividend portfolio is also easier to manage.  There is no need to select and monitor individual company dividend stocks.  The ETFs do all the work here.

We are learning a lot about dividend investing so far. Let’s check what we have done against the plan.

Do The Model Dividend Portfolio Examples Meet Our Criteria?

Now, let’s check our examples against the steps that I have spelled out thus far.

Step #1: Are the holdings diversified? Yes. Each example contains dozens of dividend stocks.  Thus, limiting the risk that 2 stocks or even 1 dividend stock can do to destroy our investor’s nest egg.

Step #2: Are different industries represented?  Yes.  The monthly dividend ETFs, with their substantial number of diverse holdings, ensure adequate industry representation.

Step #3: Have multiple asset classes been included?  Yes again.  We have bonds, preferred stocks, and common stocks in our monthly dividend portfolio examples.

Step #4: Select monthly dividend stocks for your portfolio.  Yes.  The sample dividend portfolios are made up of stocks paying monthly dividends.  So, each will pay a stable monthly dividend income.

Step #5: Have we considered smart asset allocation? We have 1 final yes!  Our investor used a simple, but “tried and true” asset allocation method and spread her money across common stocks, preferred stocks, and bonds.

Next, I want to share 1 more dividend portfolio example.  It’s not like the first 2 examples.  But, I think it deserves a mention.

Dividend Portfolio Example 3: Integrating Monthly Dividend Stocks Into Your Current Holdings

Our first 2 dividend portfolio examples had our young lady investor starting with a blank slate.  In other words, she was starting from scratch.

On the other hand, you may be farther along in your dividend investing journey. An intermediate or even advanced student of this dividend investing game.

If so, I suspect you already own some high-quality dividend stocks and ETFs that you handpicked using good investment research.

Every reader’s situation will be different.  So, all I can do is throw out some thoughts about integrating some of today’s concepts into your current holdings.  Here goes…

Your portfolio doesn’t have any stocks that pay monthly dividends.  Then consider adding any of the 7 monthly dividend payers to your investments.

Need some bonds in your portfolio to balance out your asset allocation?  Then add some shares of BND to your holdings.

Want more exposure to real estate investment trusts (REITs)?  Consider picking up some shares of Realty Income or Stag Industrial.

Finally, maybe you have never invested in preferred stock?  Perhaps a few shares of PFF would be a good addition to your stock dividend portfolio.

Okay now.  Just 2 more steps to go.  And our quest for the best dividend portfolio utilizing monthly dividend stocks will be complete.

6. Reinvest The Dividends From Your Portfolio

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If you do not need your dividends for expenses, reinvest them.  By doing so, you will compound your wealth more rapidly.

Now that you are receiving dividends from good stocks. You have a couple of options for reinvesting them.

First of all, you can automate dividend reinvesting.

What this means is that you tell your brokerage firm to automatically reinvest the company dividend payments or ETF dividends back into that company’s shares.

Set it up and forget it.  Your cash from dividends is put back to work in your dividend stocks right away.

On the other hand, investment decisions on what stock to buy are taken out of your control.   You may automatically reinvest in shares of an overvalued stock.  Or, a stock you own too much of already.

The second option is to let your dividends accumulate in cash.

Each month put the dividends paid into the dividend stocks of your choice.  Just be sure to choose your stock investments wisely.  Look for the best value at the time.  Or use lump-sum dividend reinvesting to rebalance to your target asset allocation.

Either of these dividend reinvestment methods is fine.  It’s a matter of personal preference.

For example, right now I like to reinvest my dividends in a lump sum.  But when I was younger, I preferred the automated approach.

Finally, have you have built a large enough dividend retirement portfolio.  And want to kick back and enjoy your leisure time?

Then, you have the option to stop reinvesting the dividends received from stocks.  And use them to pay your bills.  Isn’t that the goal for most diehard dividend investors?

We are hitting the home stretch.  So hang with me.  Our last step, number 7 is here.

7. Hold Your Dividend Stocks For The Long-Term

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Dividend investing is a long-term game. Over the long run, you may experience extreme market volatility. It will challenge your ability to stay invested.

But staying invested is critical. For earning money from dividends.

Speaking from experience, I have watched my dividend stocks crumble over the years due to any number of events.

Why? Let me recall the ways this happens.

  • Wars and geopolitical tensions
  • Bursting of investment bubbles
  • Terrorist attacks
  • Banking crisis
  • Global pandemics
  • Recessions

All of these situations and events come to mind immediately from my experience.  And I’m not that old.

Life happens.  And it’s not always pretty for us as people or investors.  It’s not a matter of if stocks will go down dramatically.  It’s a matter of when.

So it’s important to get invested and stay invested following a disciplined plan.  Save money and invest regularly.

Pick good investments.  And they will eventually recover, no matter the crisis.  At least history tells us so.

This doesn’t mean you should never sell a dividend stock held as part of a portfolio.  Sometimes, when an investment no longer meets your objectives, it’s time to sell.

Just be smart about it.  And replace the holding with a higher quality dividend stock that will help you achieve your financial goals and meet your dividend payment schedule.

Okay ladies and gentlemen, “that’s a wrap” for today’s article.  Thank you for reading!

Before you go, I want to let you know I get a lot of help with my dividend stock investing. So, I’d like to share some of my favorite resources.

My Favorite Dividend Investing & Personal Finance Resources

I use all of these services to make the most of my money. And get the best investment returns from dividend stocks.

Give 1 or more of these resources a try as you work on your dividend investing success story.

You won’t be disappointed!

Now, go forth and start building a dividend portfolio from monthly dividend stocks.  Here’s a recap of the 7 step plan.

How To Build A Dividend Portfolio With Monthly Dividend Stocks: 7 Step Plan

  1. Diversify the holdings in your dividend stock portfolio
  2. Ensure your holdings represent a mix of different industries
  3. Include multiple asset classes in your dividend portfolio
  4. Select monthly dividend stocks for your investment holdings
  5. Build your dividend stock portfolio using smart asset allocation
  6. Reinvest your dividends
  7. Hold your dividend stocks for the long-term

Further Reading About Dividend Investment Portfolios & Dividend Stocks

Author Bio: Tom Scott founded the consulting and coaching firm Dividends Diversify, LLC. He leverages his expertise and decades of experience in goal setting, relocation assistance, and investing for long-term wealth to help clients reach their full potential.

Of the monthly dividend stocks mentioned, I own O, BND, and PFF.

It’s Time To Build Your Dividend Portfolio!