Building An Income Portfolio

by: Invest Yourself

My background

I work in the Information Technology field as an onsite support technician for a certain software suite that my company created. I make a decent annual salary. I am married and my wife and I are expecting a child early this year. My wife is a stay at home mom that does some work on the side such as writing and various odd and end jobs. I am the primary source of income for our family. I thought to myself, how great would it be if I were making that money and not actually working, a great "pipe-dream" as my wife would say.

So with that in mind almost 3 years ago I started setting aside money for one single solitary purpose. I wanted to create my own portfolio of income generating stocks. I would like to replace my current salary with the same level of income from this portfolio. I also currently, through my employer, contribute to a company 401k plan. My wife currently has a ROTH IRA from a previous job that we contribute to on the side. For the purpose of this article my 401k and ROTH IRA will remain non-factors in this portfolio.

I firmly believe there is only one model that promises consistent returns to investors. It is not gambling on penny stocks. It is not betting the farm on the next great tech idea. It is not even stocking money away in bonds for a whole life. Bonds do have a place in any good income portfolio but they should not be the sole theme. I subscribe to the value dividend model. Why? I am naturally an overly cautious investor. I would buy a stock one day. Watch it drop 3% the next day and be tempted to sell it immediately. I feared losing everything. I realized however that if I had dividend payments to look forward to, then I was less likely to overreact when my picks turned south.

How have I contributed to my account? My contribution model is simple. If I end the month with more money than I began, after all expenses and other savings have been taken out, the remainder goes into my stock account. This is the money that I can afford to lose. I would like to give a word of advice to the novice investor. Never invest with money that you cannot afford to lose! Over this almost four-year time frame I have deposited a total of $21,629.91 into my brokerage account. The value of my portfolio at the time of this writing currently stands at $30,637.80. I have a net worth increase in my portfolio of $9,008.89 over the life of my portfolio. This means that my average annual return on contributed dollars stands at 10.5%.

My investing pattern

Below is the method of buying stocks that I use.

Buy $500 of 10 stocks
Increase cost basis of 10 stocks to $1,000
buy $1,000 of 5 new stocks
Increase cost basis of 15 stocks to $1,500

buy $1500 dollars of 5 new stocks

Increase cost basis of 20 stocks to $2,000
Note: Repeat this pattern until you come to a point where you cannot find any more income stocks that you like. At this point stop adding new stocks to your portfolio and continue increasing the cost basis in your current stock by $500 increments.

My current portfolio

Using the above investing pattern I have just added 5 more stocks to bring my portfolio up to a total of 20 stocks each with a cost basis of at least $1500. My current portfolio is listed below.

Stock Held Shares Cost Basis (Per Share) Current Dividend Annualized Dividend
The Hershey Company (NYSE:HSY) 22.4301 $66.11 $0.42 $37.68
Waste Management, Inc. (NYSE:WM) 46.4296 $32.31 $0.355 $65.93
IBM Corporation (NYSE:IBM) 7.9273 $189.20 $0.85 $26.95
PowerShares Preferred Stock ETF (NYSEARCA:PGX) 103.615 $14.52 $0.0781 $97.10
iShares iBoxx High Yield Corporate Bond (NYSEARCA:HYG) 16.5826 $90.95 $0.505 $100.49
Wells Fargo & Company (NYSE:WFC) 44.7152 $33.55 $0.22 $39.34
Southern Company (NYSE:SO) 33.7511 $44.44 $0.49 $66.15
E. I. du Pont de Nemours and Company (DD) 28.8635 $51.97 $0.43 $49.64
Darden Restaurants, Inc. (NYSE:DRI) 29.3249 $51.15 $0.50 $58.64
Chevron Corporation (NYSE:CVX) 13.9602 $107.45 $0.90 $50.25
Archer Daniels Midland Company (NYSE:ADM) 48.7283 $30.78 $0.175 $34.10
Johnson & Johnson (NYSE:JNJ) 22.8649 $65.60 $0.61 $55.79
Wal-Mart Stores Inc. (NYSE:WMT) 23.6992 $63.29 $0.3975 $37.72
Intel Corporation (NASDAQ:INTC) 55.9137 $26.83 $0.225 $50.32
Verizon Communications Inc. (NYSE:VZ) 36.9645 $40.58 $0.515 $76.14
Pepsico, Inc. (NYSE:PEP) 22.4956 $66.68 $0.5375 $48.36
American Water Works (NYSE:AWK) 40.1918 $37.32 $0.25 $40.19
General Electric (NYSE:GE) 66.2173 $22.65 $0.19 $50.32
HJ Heinz Co (HNZ) 26.5582 $56.48 $0.515 $54.70
Realty Income Corp (NYSE:O) 37.0775 $40.74 $0.1518 $67.54

My current portfolio annualized dividend payout is displayed in the table below; remember my goal is to completely replace my current income level.

Current Annualized Portfolio Dividend Total $1107.44

Goal: $56,000 in annualized dividends. As you can see I have a long way to go. Please stick around and follow my progress. I will be releasing quarterly updates regarding my portfolio progress. I will also follow up with articles as to why I selected the above stocks in my portfolio.

What this means for you

I am not asking you to invest in the same stocks that I own. You may not like some of the stocks that I own. You still need to do your own homework as to what companies you wish to invest in. This article and its subsequent quarterly updates are merely designed to show you proof that this investing model works over time.

Stock-picking guidelines

If you are not quite sure what stocks to start evaluating, below are some loose guidelines that I use when picking my stocks.

  1. Does the company pay a dividend?
  2. Has it shown a history for increasing its dividend over time?
  3. Does the company have a reasonable P/E(18 or less) value?
  4. Is the current dividend yield larger than 2 percent?
  5. Does the company have a history of buying back stock?

If you can answer yes to 3 of the 5 questions with the answer to number 1 a required yes, then the stock is worth considering for your portfolio. If you can answer yes to all 5 than you should strongly consider adding that stock. I hope that over time I can prove to you all why I am a firm believer in the dividend income model.


Please reply in the comments section if you are doing something similar and let me know what stocks your portfolio contains.

Disclosure: I am long HSY, WM, IBM, PGX, HYG, WFC, SO, DD, DRI, CVX, ADM, JNJ, WMT, INTC, VZ, PEP, AWK, GE, HNZ, O. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.