Dividend growth investing is a fantastic strategy. I’ve personally used this strategy to go from below broke at age 27 to financially free at 33. I now manage a very large dividend growth stock portfolio.
I mean “large” in every sense of the word. It’s got over 100 stocks in it, so it’s large in terms of holdings. It’s valued at well into the six figures, so it’s large in terms of value. And it produces enough dividend income for me to live off of, so it’s large in terms of passive income production.
I did all of this without a high-paying job or a college degree – after growing up on welfare as a kid. So I know that this is possible for just about anyone out there.
But how do you actually go about building a dividend growth stock portfolio? Well, that’s what today’s article is all about.
Today, I want to give you some important tips that could help you build your own six-figure dividend growth stock portfolio.
Ready? Let’s dig in.
The first tip? You should create a plan before you start creating a portfolio. Otherwise, you’re flying blind.
This should be a business plan, because you’re a businessperson investing in businesses.
This business plan should lay out everything related to capital allocation and overall portfolio construction, including which stocks to buy, how much stock you’ll buy each month, how many stocks you will own, why you will buy stocks you’ll buy, when to buy stocks, how much income you want to produce from the portfolio, and by what date you want to accomplish all of this.
Before I started investing, I had all of this laid out.
One of my big objectives was to become financially independent by 40 years old. But I just couldn’t wait that long, so I was even more aggressive than I originally planned on in terms of frugality, working, hustling, saving, and investing. Other than speeding things up, most everything else I originally laid out is what I’m still working with to this day.
Which stocks should you buy?
It’s up to you. But I stick to high-quality dividend growth stocks. This is a universe of hundreds of world-class businesses that produce reliable, rising profits and pay out reliable, rising cash dividends to their shareholders. I’ve talked about dividend growth investing almost to the point of ad nauseam, but that’s only because it’s a dead horse worth beating. These truly are some of the best stocks in the whole world.
Where do you find these stocks?
The master list I refer to and pull from is the Dividend Champions, Contenders, and Challengers list. It’s an invaluable resource that contains data on more than 700 US-listed stocks that have increased their dividends each year for at least the last five consecutive years. World-class businesses like Apple Inc., Johnson & Johnson, and Lockheed Martin Corporation are on this list. As are hundreds of others.
Well, that’s really an individual call. I own over 100. Some investors only own 10 or 20 stocks. Other investors, through a variety of funds, own thousands of stocks. We put a video together not too long ago going over this very topic. Personally, I err on the side of diversification. Being too concentrated can really hurt you. But I’ve never heard of anyone going broke from being too diversified.
Why is very important. Why are you buying the stocks you’re buying?
Know your circle of competence. Then stay within it. Ask yourself what a business is and how it makes money. Then you should be able to clearly explain why you’re investing in a business. If your answer is simply because a stock is going up or you think the stock will go up, that’s speculation and it’s the wrong answer.
Stocks represent equity in real businesses. See yourself as a businessperson who’s approaching the idea of investing in a business.
You should be carefully and intelligently looking at fundamentals, competitive advantages, risks, and valuation. It’s research. People will do all kinds of research on a car purchase or what kind of refrigerator to buy. But they’ll buy a stock because they heard about a stock ticker on a forum board. That’s silly. Make sure you approach investing as a thoughtful businessperson in the way your business plan dictates.
Another tip? All else equal, if you like a stock at one price, you should like it even more at less than that price.
It’s funny to me. The stock market is the only market where I’ve seen people get upset about a sale. People freak out when the market drops, when they should actually be celebrating. Why would you moan about the idea of paying less for the same exact thing? Any other market in the world and people are joyous over a sale.
Investing is almost like psychological warfare that seems to trip people up. Don’t let this happen to you.
It’s quite simple. If you have a business plan and an investment thesis already in place as your framework, and if you’ve really done your homework, then seeing a stock drop in price is nothing more than an opportunity to average down on your holding and buy more. If, on the other hand, you didn’t do your homework, you don’t know what you’ve got, and you don’t know why you bought it, seeing a stock drop in price is scary because now you don’t know what to do. That can lead to panic and irrational behavior.
Don’t be that person. Be the intelligent and rational investor who knows exactly what they’ve got, why they’ve got it, and what to do in the face of volatility.
Knowing the what and why is very important. But so is the when? When to invest? The answer to that question? It’s always. Invest early and often.
I know it sounds trite. But it’s true. The US stock market is an amazing long-term compounding machine. It’s compounded at around 10% annually for decades. That kind of long-term compounding is more powerful than you think.
How powerful?
Well, investing just $1,000 per month systematically into a machine that’s compounding at a rate of 10% per year spits out a total sum of more than $2.1 million after 30 years. 
That said, timing within the context of systematic monthly investing can be opportunistic.
What I mean by that is, you should aim to find the most attractive dividend growth stocks trading for the most attractive valuations. I invest month in and month out, year in and year out. But I opportunistically allocate that capital and put it to work in what I see as my very best ideas at any given moment – based on fundamentals, competitive advantages, risks, existing portfolio exposure, and, of course, valuation. Sometimes I’ll stalk a stock for a while, waiting for it to drop into an attractive valuation range, while I attack other ideas. You can avoid timing the market but still be opportunistic with your regular capital deployment.
The last tip? Make sure you have your time frame set in your business plan.
Not having a time frame in mind would be like setting out on a road trip without any idea as to when you will get there. Nobody would do that. You would know where you’re going, why you’re going there, how you’re getting there, what speed you’re traveling at, and when you’ll get there. All the same, there should be a time frame in mind in terms of what date you want to build a certain-sized portfolio by, which will produce the passive dividend income you need to have the lifestyle you want to live. When you build that kind of framework, which will be based on your particular finances, you almost can’t help but succeed over the long run.
— Jason Fieber
P.S. If you’d like access to my entire six-figure dividend growth stock portfolio, as well as stock trades I make with my own money, I’ve made all of that available exclusively through Patreon.
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