This Is How I've Build My Monster Dividend Portfolio!

Let’s Talk About Building a 'Monster' Dividend Portfolio, One That Generates Substantial Passive Income, Replacing the Need for Active Income!

Sep 01, 2022

∙ Paid

Dear Investors,

Dividend investing is a popular strategy, admired for its potential to generate steady, passive income.

However, it's essential to approach this strategy with a comprehensive understanding of not just the dividends but the overall stock performance.

A common mistake among average investors is focusing solely on high dividend yields without considering the stock's overall performance.

This oversight can lead to capital losses, overshadowing any gains from dividends.

As an expert in applying the Pareto Principle to investment strategies, I’ve spent considerable time analyzing and understanding the dynamics of dividend investing.

The allure of a robust dividend portfolio – one that generates substantial passive income to replace active earnings – is undeniably appealing.

Today, I'm not just sharing my recent investment moves but diving deeper into the invaluable lessons learned in building what I call my "Monster Dividend Portfolio."

The Three Pillars of a Monster Dividend Portfolio:

Building a monster dividend portfolio is more about strategic growth and wise selections than chasing high yields or spreading investments too thin.

Look Beyond Yield
Avoid the high yield trap. Often, this can be misleading and may not translate into long-term growth or sustainable dividends.
High initial yields can be enticing but often lead to investing in companies with poor fundamentals.
This mistake can turn your investment into a value trap, like Verizon or AT&T, which have underperformed despite their attractive yields.
Choose Robust Companies
Another common mistake is over-diversification. While diversification is crucial to mitigate risk, having too many stocks in a portfolio can lead to a lack of focus and diminished returns.
Instead, choose companies with strong balance sheets, steady revenue growth, and a history of dividend increases are typically more reliable and rewarding investments (MasterCard and S&P Global exemplify this, offering modest dividend yields but significant growth).
Ideally, a well-diversified portfolio should contain a mix of stocks across different sectors, balancing risk, and potential growth.
Reinvest Dividends Wisely
Lastly, use your dividends to buy into other high-potential stocks. This approach compounds your earnings and accelerates portfolio growth.
Avoid industries that are capital-intensive or overly complex. Firms like Boeing or 3M may seem robust but often present hidden operational and financial risks.
This strategy beats inflation and boosts your yield on cost.

Let me illustrate it with an example:
Consider the difference between two well establish Real Estate companies. Realty Income and Prologis stocks. Suppose you invested in both companies five years ago.

While Realty offered higher dividends, Prologis outperformed in total return due to better business growth.

Even though Prologis might not have offered the highest dividends initially, its capital growth over time meant that today, your dividends are higher compared to Realty Income!

So, it’s important to not only rely on high initial yields because it often leads to investing in companies with poor fundamentals.

Aligning with Buffett's Philosophy

My approach mirrors Warren Buffett's early investment strategies: focusing on companies with potential for robust dividend growth and reinvesting the dividends for exponential growth.

What Apple's Cash 'Problem' Means for its Stock Investors | Morningstar — Exemple: Warren Buffett holds Apple since 2016 — 50% of his portfolio!

This 'snowball' strategy emphasizes the growth of dividends and capital appreciation over mere high initial yields.

Invest in companies that not only pay dividends but have a history of increasing them over time.

This strategy beats the market, inflation and boosts your yield on cost.

In line with my Pareto Investment Strategy

It is crucial to adopt what I term the "Pareto Investment Strategy" approach, which prioritizes growth!

Therefore, as my core investment strategy is growth, I emphasize growth alongside dividend yield for my "Monster Dividend Portfolio."

I recommend selecting stocks that not only offer above average dividend yield but also show strong potential for capital appreciation.

This strategy might not yield the highest dividends initially, but it ensures a more consistent and sustainable growth of your capital.

*Pareto Investment Strategy never recommended buying Realty Income in the last 20 years.*

Choose Winners only!

“This is particularly important for me, the core of my Pareto Investment Strategy is growth, so it is simply impossible for me to recommend you underperforming stocks…
That’s why I concluded that my “Monster Dividend Portfolio” aka Pareto Dividend Portfolio should be derived from Pareto Investment Strategy.
Now it’s not the most rewarding portfolio in term of dividend distribution, but your capital will constantly grow.”

Again, look at O 0.00%↑ versus PLD 0.00%↑, if you invested in both companies 5 years ago. PLD pays you more dividends today because of capital growth!

Also, to read: