For Building A Diversified Dividend Portfolio
This is a question I get all the time: how many dividend stocks should I own?
And I think it is an extremely important question. For anyone who desires to build a recurring dividend income stream.
So, I’m here today to suggest the optimal number of individual dividend-paying stocks to buy and hold. Plus, why I think so.
With that introduction in mind. Let’s hit the question head-on.
Because your dividend income portfolio depends on it…
Disclosure: At no cost to you, I may get commissions for purchases made through links in this post.
How Many Dividend Stocks Should I Own?
And the answer is…
Hold enough dividend stocks to provide for adequate investment diversification.
On the other hand, just because dividend stocks are good. Do not hold more dividend stocks than you can periodically monitor.
As a result, the right number of dividend stocks to hold could be as few as one. Or perhaps, as many as 50.
The exact number will depend on several investor-specific factors. Such as your…
- Dividend investing strategy
- Time availability
- Risk tolerance
- Portfolio sector concentration
Chances are, as an individual dividend investor. YOUR exact number of dividend stocks to own. Will most likely be somewhere in between these two extremes.
Next, allow me to explain my answer to the question.
To give you a process for objectively thinking about your situation. And for determining the number of dividend stocks you should own. For your dividend income portfolio…
Hold Enough Dividend Stocks To Reduce Risk
Dividend investors like you and me. We seek to build and protect a dividend income stream. From what?
A possible future reduction to our dividend income.
First, reduced dividend income stems from this: one on more companies in our portfolios reducing their dividend.
Second, we also seek to protect the long-term market value of our holdings. Market value declines are a result of falling stock prices.
Unfortunately, even the best dividend investors make mistakes.
I’ve made plenty. And I will probably make more in the future.
The examples above are just a couple of ways. Even cautious investors can lose money by dividend investing.
On the other hand, with diversification. And investing for the long term. All of us can reduce the impact of the mistakes we make. Or, the inevitable bear market in stocks.
Because history tells us this…
Over the long run, we benefit from rising stock prices. Also, dividend increases from the companies we own.
Assess Your Risk Tolerance
Thus, think about risk. And ask yourself…
If one or more of the stocks I own fail me. By reducing their dividend. Accompanied by a large reduction in share price.
Do I have enough other stocks in my overall portfolio to soften the blow? And continue with my dividend income investing plan. Without jeopardizing my financial situation.
The answer will depend on your risk tolerance.
If you have a high tolerance for risk. You may desire a small, concentrated portfolio.
Pick the right stocks. And make a lot of money.
Pick the wrong stocks. And you may never generate the total return from the stock market that you desire.
Okay. Just a guess here. You may be thinking…
“I’m going to own a lot of dividend stocks. So a small number of bad stock picks do not damage my portfolio”.
To this, I say…
Hold Only As Many Dividend Stocks That You Can Monitor
No matter how much or how little investment research you choose to do. Before selecting and investing in a dividend stock.
I can guarantee you this…
You will have one or more reasons for making your investment.
On one hand, your reasons could be elaborate. And extremely well researched. Based on fundamental stock analysis.
Thus reviewing things like a stock’s dividend per share, dividend payout ratio, past dividend growth rate, dividend yield, the company’s financial condition, and business plans.
On the other hand, your reasons could be simple.
Such as simply picking a stock because it is on the Dividend Aristocrats list. Or, because it is one of the best and highest-yielding dividend stocks.
I don’t know what your reasons will be. And I’m not here today to explain how to identify, analyze, and select dividend stocks to buy. That’s not our goal.
I’m simply here to say you will have one or more reasons for buying a dividend stock.
Given that, my point is this…
Buy, Hold, Or Sell A Dividend Stock
Whatever your reason(s) for buying a stock in the first place. You should periodically revaluate each stock you own. To see if those reasons persist.
If they do. And they remain consistent with your investment objectives. Then you should continue to hold the stock. Perhaps even invest more money in it.
On the other hand, if the reasons are no longer valid. You should consider selling the stock.
Thus, can you realistically monitor 100 stocks in a dividend portfolio? My guess is no.
But I can’t say for sure. Since everyone’s situation, expertise, and time constraints are different.
What I know is this. I am suggesting a framework. So you can think about your unique situation. And decide for yourself.
As you seek to answer the question: how many dividend stocks should I own?
Next, I want to go back to the answer I provided at the beginning of the article. To the question, we are addressing today.
Specifically, I said your exact number of stocks to own could be 1, 50, or somewhere in between.
So, let’s examine these possibilities a little more closely.
The Case For Owning 1 Dividend Stock
Is one dividend stock enough?
Probably not. If we are talking about a single company stock.
Pick the wrong stock. And your dividend portfolio goes down in flames. If the company runs into a long period of financial difficulty.
On the other hand, you could choose one exchange-traded fund (ETF) that pays dividends. This way, one dividend stock can be enough.
ETFs trade on a stock exchange just like an individual stock. They hold a large basket of dividend-paying companies. And they pay regular dividends.
So, dividend-paying ETFs meet our two criteria. Plenty of investment diversification. But, by holding only one dividend stock ETF.
Just about anyone can review it once or twice a year. To ensure the original reasons for purchasing it are still in place.
But, the choice relates to your dividend investing strategy. And whether you want to invest in individual stocks. Or, pursue an ETF dividend strategy.
Are you struggling with this decision? Then here is a discussion about dividend stocks vs index funds. To help you decide.
Next, let’s look at the other extreme I proposed. As we evaluate the question: how many stocks should I own for dividends…
The Case For Owning 50 Dividend Stocks
First, I picked the number 50 out of thin air. Just for discussion purposes. So, let’s discuss…
A 50-stock portfolio should provide plenty of diversification. By spreading your money evenly between each holding. Thus, no one stock will represent more than 2% of the dividend portfolio.
If you pick a bad stock or two. They shouldn’t do too much damage.
On the other hand, can one person follow 50 different stocks?
Well, yes and no. It all depends on how much time you have. And how involved your review process is.
Think of it this way. Can you carve out a few hours each week? And review two of your stocks.
Thus, touching on each one twice per year. To examine if it is still meeting your investment objectives. And whether the company is still on firm financial footing.
I don’t know. That’s for you to decide.
The Case For Owning More Than 1 But Less Than 50 Dividend Stocks
As I said when I initially answered the question: how many dividend stocks should I own?
I think the right answer for most people will be more than 1 dividend stock. But less than 50.
I base this conclusion on academic research. It suggests a minimum of 20 dividend stocks up to a maximum of 30 are about right for the average investor. Let’s say 25 stocks for ease of discussion.
By owning fewer than 25 stocks, investment risk increases significantly.
But, by owning more than 25 stocks, there are diminishing benefits from diversification. Especially when additional stocks are added to a portfolio beyond 30.
So, 25 stocks should be plenty. Even when building a million-dollar portfolio. If you are diligent enough to build one that large!
Because owning more stocks increases the time required to select, buy, manage, and monitor.
Finally, one last important point to remember…
No matter how many stocks you own. Adequate diversification relies upon having representation from different industries. Also known as stock market sectors.
Good industries known for paying steady dividends include:
- Real Estate Investment Trusts
- Packaged Food And Beverage
- Health Care
So, don’t build your good dividend portfolio. By selecting all your stocks from just one or two industries.
Next, one more point before I wrap up…
Buying And Holding The Best Long-Term Dividend Stocks
When attempting to select and buy the best dividend stocks. And for being a monthly dividend portfolio builder. Also, for monitoring your stocks periodically.
There is no shame in getting some help. And having the best tools.
For this purpose, I have a few suggestions for you to consider. All of which I have used to build out my dividend portfolio.
A service that follows hundreds of dividend stocks based in the U.S. and Canada.
With a solid long-term track record. For picking high-performing stocks dating back to 2002.
Both of these services deliver their best and most timely stock recommendations to your inbox. And do so every month.
Finally, be sure to trade your stocks for free.
For this, I like the Webull app.
Webull is fast, easy to use. It has some excellent trading and research capabilities. To make buying and monitoring your stocks less of a chore.
Okay. That’s all I have for today.
Allow me to wrap up with a summary…
How Many Dividend Stocks Should I Own?
The exact number of dividend stocks to hold is a balancing act between two things.
First, achieving a satisfactory level of diversification. Second, by owning a manageable number of stocks that you have the time and ability to monitor.
It can be as few as one dividend stock. By investing in a dividend-paying ETF.
Or, as many as 50. Maybe more depending on your time availability, investment objectives, and expertise.
For my portfolio. I land closer to the 50 mark.
But, I have been reducing that number as time has passed. By allocating the same amount of money for dividend investing. But, to fewer stocks.
And thinking about getting closer to the sweet spot. Specifically, a 20-30 stock portfolio.
To benefit from adequate diversification. Yet, without the time commitment involved of having so many stocks to keep an eye on.
You can look at our dividend stock portfolio example. It has 39 dividend stocks. Just to get an idea. What a portfolio of that size might look like.
That’s all for today. Good luck in answering the question: how many dividend stocks should I own?
More Reading About Dividend Investing And Dividend Stocks
Ready to make some cash? Then read these tips about making money from dividends.
Still on the fence about dividend stocks? Check out the pros and cons of dividend income investing.
Finally, get a step-by-step monthly dividend plan. To elevate your dividend investing game.
My Favorite Dividend Investing Resources
I mentioned several of my favorite dividend investing resources. And have summarized them here for your convenience.
- Trade stocks for free with the Webull app
- Get dividend stock recommendations from Simply Investing
- Get top stock picks from Motley Fool
- Manage all of your finances with Personal Capital
Author Bio, Disclosure, & Disclaimer: Please join me (Tom) as I try to achieve my goals, find my next place to live, and make the most of my money. However, I am not a licensed investment adviser, financial counselor, real estate agent, or tax professional. Instead, I’m a 50-something-year-old, early retired CPA, finance professional, and business school teacher with 40+ years of DIY dividend investing experience. I’m here only to share my thoughts about essential topics for success. As a result, nothing published on this site should be considered individual investment, financial, tax, or real estate advice. This site’s only purpose is general information & entertainment. Thus, neither I nor Dividends Diversify can be held liable for losses suffered by any party because of the information published on this website. Finally, all written content is the property of Dividends Diversify LLC. Unauthorized publication elsewhere is strictly prohibited.
Your question answered…