I’d like to set aside 30%-40% of my portfolio to high dividend paying stocks. I mean allocating capital to buying stocks that pay a dividend which can supplement my cash flow, as opposed to buying a stock with the prospect of higher capital appreciation.
Here are my reasons why:
1) Positive Cash flow – A positive personal cash flow is the only thing that will allow you to be financially free. Higher positive cash flow offsets expenses, meaning more money for investment. I would like to eventually save >100% of my earned income.
2) Being paid to wait is always helpful – While the end game is still to own a larger and better company over the long term, assets and moats take time to strengthen. All things being even, a bigger moat almost always results in a better dividend yield, therefore you should be receiving a larger dividend over time as the company does better.
3) Knowing that you cannot be right all the time – Even the best researched or undervalued stocks have a 50-50 chance of going up or down. Some of my contrarian plays have become falling knives, patience and waiting for the market to react to your investment thesis is tough when you are not being paid to wait.
4) Investing requires patience – Wealth building requires the right opportunities and more importantly time. Better always better to be paid to wait then just to wait.
As dividend stocks are typically low beta, its hard to get them at a good price while they are performing well. You can only study and research them well when the markets are up to identify the gems from the blanks.
With time and patience I believe it is possible to supplement your active income with dividends to sustain ever increasing expenses.