As you know from the title of this blog, paying off debt (our mortgage) is our number one mission these days. However, a close secondary mission is to build wealth.
Our wealth-building strategy is mostly centered around the accumulation of stock in solid, dividend-paying companies with a long history of paying, even increasing, their dividend. We also hope to accumulate a rental property or two in the not-so-distant-future.
The scope of this post will be limited to the dividend stock accumulation phase of our wealth-building strategy. I’ll tackle real estate later when we are better prepared to actually begin looking to buy a property, and of course I’ll share that process as well.
Selecting Dividend Stocks
My selection of dividend stocks is really quite simple. I have a target list of 20 or so stocks that you might hear referred to as “best of breed.” These companies are quite often the top one or two companies in their industry in terms of market capitalization, brand recognition, longevity, financial strength, etc.
I’ve only recently started accumulating these stocks, but a couple names from our small portfolio you may recognize are Intel and Johnson and Johnson.
Intel is currently yielding 4.3%, which is unheard of in the technology industry. While demand for personal computers may be diminishing, the demand for chips to run servers and other hardware will continue to increase as people turn to cloud computing, and companies look to upgrade their networks over time.
Johnson & Johnson is sort of a double-sector play for me. They are well known for their consumer products, particulary their baby care product line of soaps and shampoos. However, they are very much a medical play thanks to their line of medical devices & diagnostics businesses, and prescription and over the counter products.
JNJ currently yields roughly 3.5% and has increased dividends for 49 years in a row. They’ve been around for 125 years, and more recently have had 27 consecutive years of adjusted earnings increases. Very few companies can match that record of growth.
But high yields are not the only qualifier for making it into our portfolio, because that doesn’t tell the whole story. We only invest in companies with strong balance sheets, because I believe a company that is highly leveraged represents more risk than one with a ton of cash and little debt.
My short-term goal is to build our portfolio to the point where it yields about $500 a month in dividends. That’s going to take roughly $150,000 in portfolio value averaging a yield of 4%. Admittedly, that is a stretch goal considering we are starting from nothing. But hey, you gotta start somewhere!
Over time, I’d love to grow that monthly dividend income to the point where it covers all of our basic monthly expenses (which should be much lower after we pay off our mortgage). Imagine no longer having to work for a living, but instead, doing something you love. That’s the long-term goal, spending the majority of our time doing something we love.
Disclaimer: Long JNJ, INTC