2 Strategies to Build Massive Dividend Stock Portfolios

by: Kevin Parker

Having a strategy to stick to is probably one of the more important aspects of investing. If you don't have a strategy, you're prone to regularly buy whatever is "hot" at the moment, which will often result in buying stocks at high valuations, rather than buying quality companies at low prices when they seem out of favor (a strategy we all agree to in theory).

If you're interested in building a massive dividend portfolio, there are two strategies that I would recommend.

Strategy #1: DRIP & Buy

The DRIP and buy strategy is a two part plan with the first one utilizing Dividend Reinvestment Plans (DRIP) for a handful of dividend stocks. I'd recommend probably about five or so stocks and no more than ten. The reason being you want to be intimiately familiar with these companies and have a very high level of confidence in their long-term profitability.

You will also want these companies to have a very high track record with regards to dividend payouts and increasing dividends.

The second part of the strategy refers to buying bulk "chunks" of shares when very rare, and very attractive buying opportunities present themselves. Late 2008 / Early 2009 was the most recent example of a rare and very attractive buying opportunity. Here are some examples of stocks you could have bought and at what price:

Stock Approximate
Multi-Year Low
Current Price *Yield on Cost
Philip Morris Int'l (NYSE:PM) $33.50 $70.19 7.6%
Microsoft Corp (NASDAQ:MSFT) $15.50 $24.49 4.1%
Johnson & Johnson (NYSE:JNJ) $48.00 $65.69 4.75%
3M Company (NYSE:MMM) $42.00 $93.56 5.2%
Raven Industries (NASDAQ:RAVN) $16.50 $55.10 4.4%

*Yield on Cost refers to the current dividend payout based on the cost of shares had you bought at the multi-year low.

Now, clearly it's not easy to buy stocks at the multi-year lows as described above. Most of us didn't do it. However, I would suggest that it is easier to buy at lows such as these if you had this strategy in place. Sure, you may have not nailed the exact bottom, but that isn't the point.

The key here is to simply have the capital available should you stumble upon these drastically lower prices - then have the nerve to pull the trigger. Having the nerve to pull the trigger will come from a high level of confidence in the underlying businesses of these companies, which goes back to the idea of only following a few, handpicked stocks so that you can be intimately familiar with them.

Strategy #2: Modified Dividend Reinvestment Strategy

While this strategy, like the first one, emphasizes dividend reinvestment, it is done with a slight modification.

Strategy #2 is similar in that it recommends only a few strong companies in your portfolio, but it does not implement automatic dividend reinvestment. Instead, this strategy recommends letting the cash dividends collect and pool together and then on a regular basis, reinvesting this cash based on the value that is presented at that time.

For example, I have been consistently buying shares of McDonalds Corp (NYSE:MCD) over the last year or so. The stock has been climbing steadily and I am not nuts about the current price level. Instead of auto-reinvesting dividends, I might instead let the cash accumulate and invest the dividends in something like Wal-Mart Stores, Inc. (NYSE:WMT) which I view as a better value at current prices.

The result will hopefully offer the slight advantage of reinvesting cash from dividends into stocks that might temporarily be a better buying opportunity and thus money is being allocated more effectively, and the portfolio grows incrementally stronger over time.

Again, following the broad market and having an indepth knowledge of a few specific companies is a necessary prerequisite of this strategy.


Regardless of your strategy, I recommend working toward building large portfolios of strong dividend companies over time. This is a long-term process and one that should be worked with patience. Using the power of reinvesting dividends plus allocating excess cash at very opportune times can be used to build large portfolios.

Disclosure: I am long WMT, MCD, RAVN and looking to enter MSFT and PM

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