November 2016 Dividend Income Update

How many stocks should I own?

How many do you own?

Those are investing questions that I receive often.

I’ll tackle those questions again today along with this new one from a reader.

“Hi, I’m moving towards a dividend portfolio, have enjoyed your site. I was curious if/how you review your dividend stocks to determine if they are still the best candidates for your portfolio. Thanks.”

Good questions readers, keep them coming.  Here are my answers.

Reader: How many stocks should I own?

Probably as many as possible.

In The Investor’s Manifesto author William Bernstein wrote: “since we cannot predict in advance which stock and bond asset classes will perform the best, we diversify.”

This means investors can reduce the risks that come with individual stock ownership by owing the whole market not just a few select companies.

I do that, somewhat.

Canadian equities

When it comes to buying and holding Canadian equities, I feel our market is not very diverse.  You have financials, you have energy; you have the materials sector and then you have a bunch of everything else.  The Canadian market is tilted, not always in a good way.  This is why I’ve decided to own many Canadian stocks directly, own what I want, what I consider dividend studs and avoid others.  The dividend studs are Canadian blue-chip companies that have rising cash flows who increase their dividends over time, usually every year.  I believe investors, investing in the Canadian market, can consider unbundling their Canadian Exchange Traded Fund (ETF) for income – eventually.

U.S. and international equities

The story is different here.  U.S. and international markets are HUGE, much larger than Canada on the world stage.  (Recall Canada makes up something like 4% of all markets).  Outside some U.S. dividend aristocrats we index invest a good part of our portfolio for capital appreciation.

So back to the question – how many stocks should you own?  Only you can decide but the above approach works for us. Your mileage may vary.

Reader: How many stocks do you own?

We currently own about 30 Canadian stocks.  We also own about 10 U.S. stocks.   We own a few indexed ETFs.   That’s about it.

Reader:  How do you review your dividend stocks to determine if they are still the best candidates for your portfolio?

I actually don’t review my portfolio very much.  It’s really hands-off-the-steering-wheel.  If the company continues to pay me a dividend and that company has increased their dividend within the last year or so, then I continue to own it.  I don’t worry about company/market noise; I don’t worry about doomsday news.   As long as the companies we own continue to pay dividends and ideally, those companies increase their dividends every year –  they stay in the portfolio.  If there is no dividend increase over a period of one or two years, or certainly there is a dividend cut, then I examine a company much more closely.

Thanks to our boring plan of buying and holding Canadian companies that pay dividends we’re on pace to earn almost $13,200 this calendar year from dividends – a part time job I don’t have to show up for.  Our goal is to earn about $15,000 by this time next year.  I look forward to seeing how we do.

Thanks for your questions and reading.