First 2019 Update To Steve's Dividend Portfolio And Strategy For Replacing My Salary With Dividend Income

by: Steven Fiorillo

Dividend income is a great way to supplement your retirement accounts and add another vehicle to help replace your salary.

Dividends from ETFs and stocks will play a critical part in my retirement when I stop reinvesting them and collecting the quarterly distributions.

I am building a portfolio which generates monthly income to help me achieve my goals so I can retire and sleep well at night.

On ugly days like Monday, when the Dow finished down $617.38 and the Nasdaq finished down $269.92, it makes me even more thankful for dividends. I have been constructing a dividend portfolio outside of my wife and my 401Ks and trading accounts. I add to the dividend portfolio by selling positions in our trading accounts and reallocating the profit and putting new capital to work. My goal is to supplement as much of our income as possible in retirement, with income from dividends prior to social security and distributions for our 401Ks. At 37, I plan on working for another 30-35 years and continuing down this path by expanding my dividend portfolio from a combination of stocks and ETFs.

Why do I have a split allocation between ETFs and stocks?

It wasn't intentional to have such an even split between ETFs and stocks in my dividend portfolio. It just ended up that way. As a long-term investor, I plan on encountering many corrections in addition to bear and bull markets. I have ETFs as part of my dividend strategy because many of them pay a quarterly dividend, they take the single stock risk out off the table, and many have between a 2% and 3% dividend, while some exceed 3%, and one or two exceed 4%. I also like the exposure that some of the ETFs provide in markets I am just not as familiar with but want exposure to, including Emerging Markets and Foreign Developed Markets. You can defiantly create a sound dividend strategy from investing in quality stocks such as @DividendSensei, but for me, I like to mitigate my downside and have an anchor with ETFs.

Source: (Steven Fiorillo)

Additions and subtractions since my last dividend portfolio article

Since my last article, I sold General Electric (GE) and Starbucks (SBUX). I sold GE well above today's prices, and SBUX is a bit higher than where I sold it. I have mixed feelings about selling SBUX as I had the position for quite some time. I mainly sold SBUX because it exceeded my expectations in the profit category, and the dividend yield was pushed under 2%. I decided to reallocate the money I made on that position and the capital I still had after taking a loss on GE. While I believe GE will recover, the dividend is well under 1%, which doesn't fit my investment goals of this portfolio.

I found value inside my portfolio rather than adding new positions. Some of the previous positions I was watching such as Procter & Gamble (PG) and Kimberly-Clark (KMB) ran up a great deal and exceeded the dividend yield, which I want to add them at. I added to my position in AT&T (NYSE:T) as I believe it is undervalued, and the dividend yield was over 6.5% when I added shares. I outlined the case why I felt AT&T was undervalued in an article I wrote, and I may still add more shares.

I also added to my positions in Tanger Factory Outlets (SKT) and Ford (F). SKT shares are so depressed that their dividend is pushing 8%. SKT is a constituent of the S&P High Yield Dividend Aristocrat Index as the dividend has increased on an annual basis since 1993 and supports a 10% 5-Year CAGR. I went to the Tanger Outlets in Deer Park NY with my wife last month, and the shopping center is not what you would expect from an outlet center. It is designed quite well, and the place was packed. My big takeaway was the brands which have their outlets at Tanger. I don't believe e-commerce is the death of retail at brick and mortar locations, and Tanger provides an important place in the retail cycle. I am happy to collect my dividends and reinvest them while I wait for the share price to rebound. I added to my Ford position when the dividend exceeded 6.5%. There isn't much I need to justify investing in Ford as it is a great American company, which is in no danger of going under. Ford has a current dividend yield of 5.78% with a payout ratio of 51.8%. I still believe there is value in Ford, and I am happy to collect the dividends and reinvest them.

On the ETF side of the portfolio, I added to the ALPS Alerian MLP ETF (AMLP), Vanguard FTSE Developed Markets ETF (VEA), and SPDR Portfolio Emerging Markets ETF (SPEM). At the time, all three segments were taking a beating, so I allocated some additional capital to both positions. With ETFs and mutual funds, I tend to stick with Vanguard, Schwab, and State Street. The only fund I own outside of these groups is the ALPS Alerian MLP ETF for two reasons. First, I really like their pipeline allocation, and second, I can own it in a taxable account and not receive a K1. For those that get annoyed at this, yes I understand the tax benefits of having individual MLPs in a taxable account, but I simply don't want to deal with K1 forms come tax season.

Percentage allocations in my portfolio and percentages of dividend income

While the allocation of capital is basically even between ETFs and stocks in my portfolio, the majority of dividend income is generated from stocks. As you look at the allocations below, I like energy and real estate investment trusts (REITs) which provide larger dividends than your traditional companies.

Source: (Steven Fiorillo)

My 10 largest holdings of the 29 positions represent 57% of the entire portfolio, and 32.96% is invested in ETFs. I try to keep the majority of my positions under 5% of the portfolio and won't exceed 10% on a single position unless there is an extraordinary reason. AT&T is my largest position at 8.85% of the portfolio, and I will only allow myself to add more if it drops below $28 per share. The other four positions which exceed 5% of my portfolio are BP p.l.c. (BP), SPDR Portfolio S&P 500 Growth ETF (SPYG), Vanguard High Dividend Yield ETF (VYM), and Vanguard S&P 500 ETF (VOO). If you have read my other articles, you know I like energy for many reasons, and BP is my favorite super major. I have owned BP for three years now, and I would add more if an opportunity presented itself to acquire shares lower than my average pps. SPYG and VOO have served me well as they provide investments throughout the S&P 500, and VYM is Vanguard's high dividend yield ETF which has a dividend yield of 3.12%.

Source: (Steven Fiorillo)

Source: (Steven Fiorillo)

ETF section of my dividend portfolio

In my ETF section, I stick to primary large cap-focused ETFs as I like to be very conservative. I have 75.49% of my ETF allocation across different U.S.-based large-cap funds. Within this section, there are three specific ETFs that have large yields. The SPDR Portfolio S&P 500 High Dividend ETF (NYSEARCA:SPYD) pays $1.61 per share or 4.32%, the Vanguard High Dividend Yield ETF (NYSEARCA:VYM) pays $2.69 or 3.17% and Schwab U.S. Dividend Equity ETF (NYSEARCA:SCHD) pays $1.53 or 2.97% per share. In my foreign exposure both of the ETFs, I selected to pay a larger dividend than some would expect. The SPDR Portfolio Developed World ex-US ETF (NYSEARCA:SPDW) pays $0.81 per share or 2.83% and Vanguard FTSE Developed Markets ETF (NYSEARCA:VEA) pays $1.26 or 3.14%. My largest dividend-paying ETF is the ALPS Alerian MLP ETF, which pays $0.79 per share or 8.07%.

My next additions in the ETF section will be geared toward real estate. I have found two ETFs which focus on different types of REITs which are at the top of my list. The iShares Mortgage Real Estate Capped ETF (NYSE:REM) is focused more on mortgage real estate investment trusts. REM pays a large dividend at $3.81, which is an effective yield of 8.88% per share. The second REIT-focused ETF I like is the Vanguard Real Estate ETF (NYSEARCA:VNQ). VNQ focuses more on REITs that purchase office buildings, hotels, and other real property. VNQ currently pays $3.44, which is a dividend yield of 3.96%.

Source: (Steven Fiorillo)

Source: (Steven Fiorillo)

Source: (Steven Fiorillo)

Stock section of my dividend portfolio

Currently, I have sixteen individual dividend stocks in the portfolio across eight sectors. I have 77.93% of the portfolio spread across four of the sectors. I am heavy in energy, telecom, and equity and mortgage REITs. When selecting dividend stocks, I look for value and a company I want to hold long term and allow the dividends to compound through the dividend reinvestment plans (DRIP) option. Some of the things which impact this decision are the dividend yield, payout ratio, dividend growth rate, and how many consecutive years the dividend has increased. I have written individual articles on T, Energy Transfer (NYSE:ET), Enterprise Products Partners (NYSE:EPD), and Enbridge (NYSE:ENB) explaining my reasoning why they each offer tremendous value at their current valuations.

Diversification is critical within a dividend portfolio, and I need to add some additional sectors and beef up some current sectors to reduce such large allocations in energy and telecom. Owning Dominion (D) has been very favorable among the current volatility as utilities have performed exceptionally well lately. I am planning on adding new capital to my dividend portfolio and opening positions in multiple companies, which I will outline below.

Source: (Steven Fiorillo)

Source: (Steven Fiorillo)

Source: (Steven Fiorillo)

The stocks which may earn a spot within my dividend portfolio

As much as I want to add new sectors, I am very impressed with BPY. After reading articles from @BradThomas and @DividendSensei about BPY, I have done a lot of research and moved them to the top of my list. The main reason BPY interests me is that they operate in office space, retail, multifamily, and hospitality. They are very diversified and have an impressive global real-estate empire. In their core office portfolio of class A office assets, they have 142 premier properties with 96 million square feet with an 8.4-year average lease term which 94% is leased. The core retail portfolio has 121 million square feet across 124 malls and retail properties. The retail segment has a 97% occupancy rate. Their other investments include 19,661 multifamily units, 156 hospitality properties, 329 triple net leases, 2 million square feet of logistics space, etc.

My number two pick that I am watching now is AbbVie (ABBV). Their pipeline of drugs spans across Immunology, Oncology, Neuroscience, virology and General Medicine. Their Oncology division has SC-011 a small cell lung cancer drug in phase 1, Telisotuzumab vedotin a non-small lung cancer drug in phase 2 and Veliparib which is in phase 3 trials for Ovarian Cancer, Breast Cancer, and Lung Cancer. In addition to their robust pipeline, ABBV has a payout ratio of 50.9%, which should allow them to continue their dividend growth. ABBV has also been growing its revenue by more than 10% for the past three years. ABBV is very interesting to me as it will diversify my portfolio further and add what looks to be a great company to provide long-term growth in both share appreciation and dividends.



Current Price

Annual Payout

Dividend Yield

Payout Ratio

5-Year Growth Rate

Dividend Growth

Duke Energy







11 Years

Southern Company







17 Years








6 Years

Brookfield Property Partners






5 Years








9 Years

International Business Machines







20 Years

Kinder Morgan







2 Years

(Source: Steven Fiorillo) (Data Source: Seeking Alpha)


There is no such thing as a free lunch, but when I receive dividends from companies I am invested in, it feels nice having someone else add to my positions other than me. Dividend ETFs and stocks have become a foundation for my investing. While I still invest in growth stocks such as Amazon (NASDAQ:AMZN) and Facebook (NASDAQ:FB) and speculative stocks, including Chesapeake Energy (CHK), my overall goal is to be very comfortable in retirement. As the years and decades go on, I will be adding substantially to this portfolio with the hopes of generating enough income where I don't have to worry about social security or my 401K. Between reinvesting the dividends and adding capital on a continuous basis, hopefully, this will come true. I will be diversifying into more sectors as time goes on and adding quality names to the portfolio.

Disclosure: I am/we are long AGNC, T, BP, STWD, ET, OHI, AMLP, SKT, D, NRZ, VYM, NLY, F, VEA, ENB, SCHD, VOO, SPYG, EPD, SPYD, M, CSCO, SPDW, SPEM, SCHB, SPLG, CTL, SPYV, SPTM, CHK, AMZN, FB. 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.