If you keep your goal focused and plan your strategy accordingly, you don’t need to hold a great deal of stocks to accomplish a well diversified and bountiful income portfolio, says Roger Conrad of Personal Finance.
Buy the business, not the yield. Diversify your holdings across sectors and individual stocks. Re-balance your portfolio every three months to pare exposure to your winners. Never use a stop-loss order or “average down” on a falling stock. Enter buy-limit orders to pick up high-quality stocks when they temporarily tumble.
These simple rules will spare you considerable pain in these volatile times. You’ll also reap a stream of dividends as you wait for your stocks to rally.
Monthly dividends are a major selling point for many Canadian equities, such as favorites Canadian Apartment Properties REIT (CDPYF) and Vermilion Energy (VEMTF). But investors should never buy a stock simply because it pays a dividend frequently. The key is to own a collection of high-quality names that pay dividends on different dates.
Any balanced portfolio should contain at least 12 to 15 individual stocks. This time-tested strategy will allow your portfolio to weather a complete disaster for one of your holdings. Even better, you can ensure a payout every two weeks by holding as few as six of our Income Portfolio selections.
Any combination of portfolio stocks should be diversified across sectors. The Income Portfolio includes exposure to a wide range of businesses: US electric utilities, energy-focused master limited partnerships (MLP), overseas essential service stocks, communications, community banks, real estate investment trusts, big pharmaceuticals, super oils, preferred stocks and high-quality and non-investment grade bonds.
The more sectors in which you invest, the better protected your portfolio will be against the challenges in any individual sector.
Here’s one example of a portfolio culled from our Income Portfolio holdings that will deliver a payout roughly every two
weeks:
- fixed-income holding Vanguard GNMA (VFIIX), dividend paid on January 1
- US electric utility Xcel Energy (XEL), January 20
- Verizon Communications (VZ), February 1
- MLP Spectra Energy Partners (SEP), February 14
- Canadian energy producer Vermilion Energy (March 1)
- and super oil Chevron Corp (CVX), March 10
The stocks we’ve highlighted are high-quality selections suitable for even the most conservative investor. Investors willing to take on more risk might consider swapping AES Corp Preferred C (AES-PC) for Vanguard GNMA. Those seeking less volatility could substitute Canadian Apartment Properties REIT for Vermilion Energy.
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