Investing In 2019 And Beyond; How To Build A Safe Dividend Portfolio

“It would be wonderful if we could avoid the common setbacks with timely exits.”

– Peter Lynch

(Click on image to enlarge)

Source: Ycharts

In a perfect world, we would be genius investors that always get out on time and invest all their monies right before the market jumps back up. While this last sentence may seem a pure heresy for many of you, many claim and believe there are ways to know the unknown.

Recently, I’ve read many articles from those bear lovers jubilating back in October-November 2018 as the market was finally dropping. The announcements and discussions about the “current” bear market were legions. According to the most commonly used definition for a bear market, it must go down by 20% to be confirmed. Depending on which metrics you use to track the bear, you may or may not have seen it. After all, the S&P 500 hit -19.8% at its lowest point:

(Click on image to enlarge)

Source: Ycharts

What about the next day? On December 26th, the market bounced back and the S&P 500 is now up by almost double-digit (+9.5%) before the market opens on January 9th,2019.

So where does this leave us? In a perfect world of confusion and uncertainties.

Is this a market comeback?

Is this a pause for a larger drop in the next weeks?

Who finished the orange juice and left the empty pint in the fridge?

I tend to have a simple and rational way of looking at the market. Whatever will happen in 2019 will happen- no matter what I think, no matter how I invest. There is no point in guessing that. How should I invest my money in 2019? The exact same way I did in 2018, 2017, 2016…2010. This article includes my guidelines to build a safe dividend portfolio in 2019… and beyond.

Keep it Simple… Really?

My investing strategy evolves around a few simple but highly effective principles:

  • Don’t lose money (more than you should)
  • Know why you buy (so you’ll know why you sell)
  • Follow a few key metrics (sophisticated approaches sound cool, nothing more)
  • Trends are more powerful than numbers (numbers are words, trends are stories)
  • Offense is the best Defense (in everything I do in my life)

Don’t Lose Money

(Click on image to enlarge)

Source: Ycharts

I know this principle seems obvious. The whole idea of investing is about making money, not losing some. However, avoiding companies that could kill your portfolio by a major drop isn’t that easy. The above-mentioned graph shows 7 companies that cut their dividend in 2018. At DSR, we had 5 of them rated as “sell” or “strong sell” at the beginning of 2018.

Dividend cutters often see their stock price drop in a similar manner. When a company cuts its payout, it basically fails its shareholders and breaks the bond of confidence with the market. While there are no crystal balls telling you which companies will fail you in your portfolio, there are some basic rules that can help you in identifying them.

We make sure each company we keep in our portfolios shows the following characteristics:

  • #1 They are dividend growers

  • #2 They show growth vectors

  • #3 They show reasonable payout ratio (cash payout ratio or AFFO payout ratio)

  • #4 They don’t pay a high yield (or we get very cautious)

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