How I Build A Dividend Portfolio: Part 1

If you are like me, a sucker for dividend, this is how I build a dividend portfolio.

The Basics:

What is a dividend/Income?

It is a form of pay out to the shareholders.

When a company makes profit, they would either reinvest the money into the business, keep the money as retained profit, use it to buy back their shares, or they could pay out as dividends.

For REITs, it is known as income distribution instead of dividend. Income distribution is subjected to 10% tax.

Dividend & Income Distribution Policy

Some companies have dividend payout policy. Maybank, pays out between 60-80% of their net profit. REITs in Malaysia are required to pay out at least 90% of its income to shareholders.

Who pays a dividend?

Usually, matured (blue chip) companies with little growth potential tend to pay out most of their profits to shareholders. These blue chips companies are relatively stable.

Alternatively, REITs are good example of Trusts that are required by law to pay out most of their profits.

Why build a dividend portfolio?

Everybody loves ‘passively earned’ income. The simplest way to achieve that is through dividend investing. Many dividend investors strive to achieve financial independence through dividend investing. Once the dividend payout reaches the inflection point, you are literally financially free.

Your dividend will be enough to pay for your expenses.

What’s in a Dividend Portfolio?

Depending on your risk appetite, a 60% dividend stocks + 40% REITs portfolio is pretty well balance.