Dividend investor strategy: How to build a Cash Flow Machine through Dividend Investing – Detailing my investment strategy to build a basic income. This post contains affiliate links.
My long term goal is to reach financial independence through blogging and investing.
On the investing side, dividend investing is how I will reach financial independence.
I am building a cash flow machine through dividend investing that pays passive income every month.
To document the journey, I publish monthly dividend income updates on this blog.
In this article, I will show you how to start generating monthly income and use a dividend investor strategy to build a cash flow machine.
Let’s dive in.
Dividend Investor Strategy – How to build a Cash Flow Machine through Dividend Investing
Dividend Investor Strategy
My dividend investor strategy comes from The Intelligent Investor
I would encourage anyone that is considering buying individual stocks instead of mutual funds or index funds to read The Intelligent Investor first.
It will teach you everything you need to know about value investing and how to analyze a stock.
So, if you are interested in picking your own stocks, you should buy The Intelligent Investor
It will help you realize that a stock is based on a business. It’s NOT just a ticker goes up and down on a chart.
Each share is an ownership position in a business that entitles you to a portion of earnings.
Once you become a shareholder, earnings are paid out in the form of dividends on a quarterly basis.
As soon as you understand that concept, you can develop a dividend investor strategy.
The focus switches to owning income producing assets, so you no longer worry about stock price fluctuations.
Diversify Your Holdings
Of course, if you are planning to select your own dividend stocks, you will need to diversify your holdings.
It’s not just like investing in an index fund where you don’t have to pay attention.
Although there is no perfect number of stocks to own, you should own at least 20 to 30 stocks to have a properly diversified portfolio.
Admittedly, even though diversification is important, I tend to avoid ETF’s due to their lack of predictable dividend income growth.
Considering that a stock like Enbridge (ENB) can offer you a 10% dividend income growth rate per year, I’d rather own individual equities that raise dividends.
Dividend raises are one of the key reasons why dividend investing is my main investment strategy.
Furthermore, 40% of total market returns have come from dividends since 1926.
Related article: How Many Stocks Should You Own?
The Rules to my Dividend Investment Strategy:
- Acquire stocks frequently by dollar cost averaging—every pay day or once a month. The more cash flow coming in, the more money there is to allocate to more income producing assets.
- Keep Investment fees as low as possible.
- Stocks purchased must only be companies I understand.
- Only buy high-quality stocks with reasonable valuations. (Read my Dividend Investing Tips)
- Buy dividend growth stocks that raise dividends. Other than monthly income stocks such as REITS, equities owned must also be companies that increase their dividend payments on an annual basis.
Related article: Dividend Investing Tips: 9 Must-Know Tips For Dividend Investors
Thoroughly Analyze Stocks
When looking for stocks to purchase, I look for companies that have a relatively low P/E ratio. I aim for a price to earnings ratio of 15 times earnings or less.
Additionally, I look for companies that have increased their dividend consistently for more than 10 years.
I also take debt levels as well as dividend payout ratio into consideration.
In addition to the earnings per share, I pay close attention to the branding and marketing of a company.
Since I consider myself a part owner in each company I purchase, I only invest in companies that I have a personal appreciation for.
To see what dividend stocks I invest in, you can check out my monthly dividend income updates. I have been sharing which companies pay dividends in each report since the end of 2019.
Below I have included a few posts with dividend stocks that I invest in:
Dividend Growth Stocks: The Top 9 Dividend Growth Stocks For 2021
Monthly Dividend REITs: 5 Reliable REITs That Pay Every Month
Consistently Pay Yourself First (Make Investing A Habit)
In my opinion, consistency is actually the most important factor when it comes to long term wealth creation.
After all, saving $25.00 per pay is better than not investing at all.
After I find stocks that fit in my investment strategy, I keep track of them on a stock watchlist.
Whenever I save money or get paid dividends, I acquire shares of the best priced asset on my watchlist at that particular time.
I don’t worry about the price, nor do I worry about market fluctuations.
I view market corrections as an opportunity to add additional income, and I look at declining stock prices as a chance to buy dividend income on sale.
Just maintain a long-term perspective and turn investing into a habit.
Dividend Investor Strategy – Final Thoughts
I see no reason to over complicate an investment strategy.
When it comes to my dividend investor strategy, the only cash I hold is my emergency fund. Otherwise, all my savings go towards building a cash flow machine through dividend investing.
Long term dollar cost averaging into quality companies will always be better than cash-based assets, based on the dividends alone (in the long term). Inflation erodes the buying power of money. At least stocks that raise dividends will outpace inflation.
Overall, the fundamental basis of this investment strategy is simple. To build a cash flow machine:
- Set aside 10% or more of each pay regularly into a brokerage account
- Acquire high quality, income producing stocks that pay and raise their dividends.
For more information on setting up an account, funding your account, and finding a stock, check out my post on investing in dividend stocks.
Although this strategy is not suitable for everyone, it’s the perfect investment strategy for someone aiming to supplement their income by building their own cash flow machine.
Question: What’s your investment strategy? What do you think about dividend investing? Any other great strategies to build a cash flow machine?
Other Articles On Dividend Investing You Might Enjoy
How Many Stocks Should You Own?
Dividend Investing Tips: 9 Must-Know Tips For Dividend Investors
Dividend Growth Stocks: The Top 9 Dividend Growth Stocks This Year
I am not a licensed investment or tax adviser. All opinions are my own. This post contains advertisements by Google Adsense. This post may also contain internal links, affiliate links, links to external sites, and links to RTC social media accounts.
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