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Humble Beginnings of The Dividend Portfolio


Update – You can see our current dividend portfolio here: How We’re Generating Passive Income in 2017.

Dividend Portfolio

In my last post, I detailed our April cash flow and we had to dip into our savings for $253. I have taken 3 months off temporarily so this is not a permanent situation. We will get back to saving money again once I go back to work. However, we need to increase our income if I want to meet my goal – to ossite. One of the solutions is to create a dividend/yield portfolio. In this portfolio, I will concentrate on buying solid equity that has good payout.


To start with, I’ll concentrate on large cap companies that payout at least 3% dividend. Once I have a few stocks, then I plan to diversify into REIT, Corporate, and municipal bonds. My goal is to build up this account to generate around $300/month. This is a huge task once you crank the number. $300/month = $3,600/year and that mean I need more than $100,000 at 3.6% yield to generate this amount of income.

Humble Beginnings

I opened a new brokerage account and funded it with $5,000. This is a small amount to begin with, but I have to start somewhere. After a little research, I purchased 100 shares of AT&T to start the party.

AT&T T in my retirement dividend yield portfolio

AT&T is the biggest telecommunications company in the world with a market capitalization of 185 billion dollars. The current dividend yield is 5.5% and that’s almost twice of my 3% threshold.

Their Price/Earning ratio is 9.23. This is the one of the lowest PE of the telecommunication companies. PE is important because it shows the relationship between the stock price and the earning. For this portfolio, we want the PE to be lower than average of their sector. A low PE ration can denote value and usually means investors believe this company will not be able to grow much. Verizon, the next largest US telecom company, has a PE of 30.24 and similar yield. AT&T being the bigger company probably will not be able to grow as fast as Verizon, but we are looking for income and value here and not growth. If the stock price stays stable, I would be happy to bag the 5.5% yield and call it good.

AT&T also has a pretty low Beta. This is also good because I want stability in this portfolio. A Beta of 1 shows that the stock tracks the larger market in % gain and loss. So with the Beta of 0.66, AT&T will gain less than the SP500 market, but it will also be more stable when the market goes down.

The Plan

Whenever I have extra money, I’ll transfer it to this account first to build it up. If I sell some stocks in my regular account, I’ll also move the money to this portfolio. I have a few other stocks that fit my criteria and I’ll probably just transfer those over to make it simpler to track. The goal is to generate $300 per month in a few years with minimal maintenance. I’ll revisit this portfolio periodically as I add more investments.

Current value: $5,146

Year to date Yield: 0 at this time.

What do you think about my Dividend Portfolio plan? Any suggestions on what stock/bond I should buy?

Disclaimer: This is not a recommendation. My stock picking track record isn’t great so you need to do your own research. This post will help us keep track of the gains and dividends to see if they meet my passive income goal. If you need help with financial planning, consider signing up with Personal Capital. Personal Capital will help you keep track of all your investments in one place and can hook you up with a personal financial adviser as well.


Disclosure: If you sign up with Personal Capital, we may receive a referral fee depending on the size of your portfolio.

{ 47 comments… add one }
  • Frank Urbaniak May 4, 2011, 5:54 am

    I love it when people take action and have a plan to invest. AT&T is a great start.
    Perhaps the iDRIP app can help. Check it out on the AppStore.

    • Dividend Growth Investor May 7, 2011, 7:25 am

      I have been investing in dividend stocks for many years. In order to generate a higher stream of dividend income every year, one needs to focus on dividend growth stocks. If you reinvest dividends, your dividend income will further be increasing.

      However, in order to be successful you need to pick the right businesses first, make sure they can afford to pay the dividend, and that there is earnings growth to support future dividend growth. You need dividend growth, because each year the purchasing power of your cash decreases due to inflation.
      You also need a diversified portfolio covering as many sectors as possible, in order to maintain your income even if one sector does badly. Investors who only bought financial stocks pre-2007 for dividends were injured badly and saw their dividend income plunge. Investors holding more than 30 stocks in diversified dividend portfolios didn’t see much of a decrease in dividend income.

      Some dividend growth stocks have raised dividends for years at high rates. Stocks like JNJ or PG have managed to double dividend payments every 6-7 years. If you buy $50K worth of such stocks yielding 3% today you will be generating $1500 in annual dividend income. Fast forward 6-7 years however and you will be generating $3000 in annual dividend income, even if you spent the dividends along the way..

      • retirebyforty May 8, 2011, 7:31 am

        I don’t understand why dividend growth is so important. Let’s say I invest in stock A with 4% dividend. Then in 5 years, stock B yield 5%. Can’t I just sell stock A and buy stock B? I would have to pay tax on the gain, but what other problems are there?

        • Justin @ MoneyIsTheRoot May 9, 2011, 9:47 am

          In theory you are right, but I think it’s important from the perspective of what stocks experience stable growth. I invest in ADP, and they have decades of history proving their stability and growth….I view this as less risky. Not to mention they experience good share price growth.

  • Evan May 4, 2011, 6:07 am


    OBVIOUSLY, I love the idea…since you are starting with more substance than me (I started at $0 not $5K) why not also sell short term out of the money covered calls? You get to keep your dividend and the premiums if T doesn’t make it to $X

  • Kevin @ Thousandaire.com May 4, 2011, 7:02 am

    Can you do this in a Roth IRA? This way you will get all those dividend payments tax free?

    • retirebyforty May 4, 2011, 8:39 am

      This yield will be allocated to help with the bills so I didn’t think about putting it in Roth IRA. My Roth is a bit underwater though so maybe this is a good idea. I can just withdraw the yield, but accounting is going to be tricky.

      • Evan May 4, 2011, 8:42 am

        I think you have a few years on me, but that your logic is the exact reason I decided to go the non-qualified route also. I want to use the money way before retirement.

  • MoneyCone May 4, 2011, 9:59 am

    Excellent post RB40! (Tweeted it!).

    Definitely T is better than VZ in my opinion, but you should consider VOD, the parent of VZ, which too is doing very well in emerging markets.

  • Jessica07 May 4, 2011, 11:17 am

    I love your “humble beginning.” I wish mine would have had a comma in it. LOL

  • krantcents May 4, 2011, 11:29 am

    Good start! Just curious, why didn’t you use an ETF or dividend fund?

  • Buck Inspire May 4, 2011, 4:17 pm

    Nice plan and way to put it out there so you can keep tabs on it. I follow more volatile tech stocks. May need to switch to a dividend stock portfolio as I am getting tossed around by the recent volatility. Greed is NOT good. Looks like you’re on the right track. Good Luck!

    • retirebyforty May 4, 2011, 5:22 pm

      I have volatile stocks too, but they are in a different account. This account is suppose to be super stable and help with spending money. Thanks!

  • Robert @ The College Investor May 4, 2011, 4:28 pm

    Way to get started…You can’t sell call options in an IRA, but it is a good income solution if you don’t invest in an IRA.

    I would ask why you don’t start with a dividend ETF such as DVY. This ETF invests in the top Dow dividend paying stocks, so you get exposure to ATT, but you are a little more diversified.

    ATT is going to see some price volatility here in the near term due to its potential merger.

  • optionsdude May 4, 2011, 8:16 pm

    Actually, many IRA custodians will allow selling covered calls. I am able to purchase calls and puts as well as sell them in my Fidelity retirement accounts. They are self directed so there might be different allowances between these and IRAs. But I have no doubt that at least covered calls would be allowed.

    I agree totally covered calls should be sold although I would recommend owning more than 100 shares. But covered calls are a great way to increase income in a portfolio especially if the plan is to dollar cost average into a position so that a decline in the stock doesn’t hurt so much.

    Feel free to ask me any questions about selling covered calls.

    • retirebyforty May 5, 2011, 8:56 am

      I found the covered call section on your site and will go through it in detail today. Great write up from what I’ve read so far. Thanks optionsdude!

  • Money Reasons May 4, 2011, 8:46 pm

    I like Reality One, but it’s been rising like a balloon! I don’t know when would be a good time to get into it. It’s a REIT that owns corporate property. They have a continuously increasing dividend…

    Nice Plan, it’s funny that so many of us have dividends on the mind.

    I agree with Thousandaire, last year I wrote about a technique called “Roth IRA the dividend shield”. Basically, it’s point out the tax benefits of buying dividends in an IRA…

  • Ken @ Spruce Up Your Finances May 4, 2011, 10:17 pm

    Passive income such as rental income, blog earnings, and dividends are really keys to your early retirement. So far, you are are doing a great job!

  • Ken @ Spruce Up Your Finances May 4, 2011, 10:19 pm

    So far you are doing a great job. Passive income such as rental income, blog earnings and dividends are really your major players for you to retire early. Eventually both your blog and dividend earnings will grow to fulfill your goals!

  • youngandthrifty May 4, 2011, 11:42 pm

    AT&T is a great dividend US stock 🙂 It fits all the criteria of Intelligent Investor’s Benjamin Graham’s value dividend stocks.

    Looking forward to seeing the dividends roll in for you!

    • retirebyforty May 5, 2011, 12:27 pm

      I should check with you before I buy another value stock! 🙂

  • 101 Centavos May 5, 2011, 4:17 am

    That’s a good start, 5.5%. What other div stocks are you looking at?

    • retirebyforty May 5, 2011, 8:58 am

      I have some Intel stock that I was going to transfer to this account. Other than that, I don’t really know. I’m thinking about some energy companies, but need to do more research. I’ll keep mining companies in mind as well.

      • algae_94 November 4, 2011, 12:10 am

        Mining stocks can pay great dividends, but not as stable. Earnings are tied to the underlying commodity. If the price of the commodity goes down, they WILL lower the dividend so be wary of that.

        • retirebyforty November 4, 2011, 9:14 am

          Thanks for the info. I don’t know much about commodity stocks and will probably start very small.

  • Little House May 5, 2011, 10:11 am

    Yes, your “humble” beginning is a great start! What’s the difference between investing in AT&T through a dividend fund versus just opening up a stock broker account through someone like TradeKing? Is it the same? My husband is in charge of investing in our stocks, so maybe I’m just being ignorant here. (I’m in charge of our mutual fund.)

    • retirebyforty May 5, 2011, 12:26 pm

      AT&T has 5.5% dividend payout. I checked some telecom ETF and their payout is around 3.5%. The ETF is more diversified and you assume less risk, but I think AT&T will do OK too.

  • Mitchell Martin May 5, 2011, 11:54 am

    If you are targeting ~3% returns, why not just get a whole life insurance policy with a guaranteed cash value interest rate of above 4.5%? You can take out a loan against it for generally at least 1% less than your earned interest rate. When you withdraw the money, it is still working for you in some way.
    As an example, you put in 5000, withdraw 1000. You make 4.5% on the total 5000 while you have a loan for 1000 at ~3.5%. Total realized gain is 3.8% on 5000 and you only saw 4k change.

    • retirebyforty May 5, 2011, 12:24 pm

      Wow, I have no idea how this works. I’ll need to check into this. I have life insurance through work, but this might be something to consider after I quit my job. I won’t have life insurance then.

      • Mitchell Martin May 10, 2011, 8:25 am

        There is a book titled “bank on yourself” that explains the reasoning and mathematics. All of your interest income comes from the premiums being paid by the term life subscribers that will likely never receive their benefit.
        The book is attempting to sell a product through a specific company, but all major life insurance providers have similar products.

  • [email protected] May 6, 2011, 7:22 am

    Ya I agree with some of the comments above. Its so hard to grow 5k at only a 3-4% rate, you either need to continually add money or find some stuff with more risk/high dividend, just my 2 cents…but good job on starting somewhere, thats way more than most people 🙂

    • retirebyforty May 6, 2011, 8:26 am

      I’m planning to transfer assets from other portfolio here and also add to it as often as I can. Thanks to all the readers, I can also try options. We’ll see how it goes.

  • Dividend Mantra May 6, 2011, 5:53 pm

    Great start to your dividend portfolio. I started with $7k last May and have grown it considerably since. I like AT&T in the telecom sector. Vodafone was mentioned earlier, and is nice, but doesn’t have the dividend growth I look for. Of all telecoms, I like AT&T and Telefonica the best. I wanted to get into AT&T before the merger talk run-up. Oh, well. Good start, and I wish you future success!

  • The Passive Income Earner May 6, 2011, 9:55 pm

    Well done. I personally have 148 shares of AT&T. I was dripping 2 shares until their recent appreciation. AT&T is a dividend aristocrat and has increased its dividend for the past 25 years. I think you’ll find you may need less than 100K to achieve your goal with dividend increases and DRIP (if you decide to participate).

    • retirebyforty May 7, 2011, 11:40 am

      I won’t DRIP here. I’ll keep collecting dividend and purchase new investments for a few years. After that I’ll need the income to help with expense.

  • Patrick May 7, 2011, 9:48 am

    What do you think about utilities or preferred stocks for dividends?

  • My University Money May 7, 2011, 7:59 pm

    Looks like a great dividend pick up. A super high dividend, fairly recession-resistant, and good for the long term. With phones becoming a bigger and bigger part of people’s lives AT&T can’t really lose. With the Canadian dollar the way it is, now is the perfect time to add some American blue chips!

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