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Dividend Tree Investment Process

29 December 2008 Dividend Tree Book Review, Goals, Investment Process, Strategy No Comments

The purpose of my starting this blog spot is to share my journey in achieving my investment goals. In the process, I expect to continue my learning process by discussing contrasting views, and hopefully make smaller mistakes. Continuing with my motto of keeping things simple, this page describes my seven step investment process in a broader context. I foresee that over a period of time, this page will act as index page for my complete investment process. continue reading rest of the article….

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My Investment Buckets – An Overview

27 December 2008 Dividend Tree Investment Process, Strategy No Comments

My investing style is very much objective driven and I tend to follow the systemic approach. Whenever I think about my investments, I tend to look at from the full portfolio investments perspective. I believe in continuous evolution, and hence I make changes as I learn more about any aspects of investing.

I follow combination of active and passive investment process. All of my retirement investments use active investments, in the sense that they use mutual funds and bonds as investment vehicles. Although I am not a fan of mutual funds, I do not have any control on the choice of the funds in the 401(K) plan. It runs on auto-pilot and hence, I do not plan to discuss this aspect of my investment on this blog spot. Outside of my retirement investments, I have three investment portfolios which are described below:

Portfolio 1: Index-Based Exchange Traded Funds (30%)

The objective of this first portfolio is to replicate the market performance. I am currently invested in three

Index ETFs viz. SPY, EEM, and EPI. My target percentage allocation for Index ETFs is 30% of my portfolio investments. I also use S&P500 as the benchmark for all of my investments.

Portfolio 2: Opportunity Portfolio (20%)

This second portfolio is sub-divided into two groups.

  • Value-focused stocks (10%): The objective here is to invest in companies which I believe are undergoing short-term difficulties but are worthy of long term investment. Limiting myself to 10% helps me reduce the risk of over exposure in risky stocks.
  • Asset Allocation ETFs (10%): The investment is this sub groups gives me room for investing in areas which I am not familiar with and hence capture the full domain. Here, it is not necessary to look for dividend based opportunities. It helps in diversifying across one particular category without attempting the look for a unique opportunity.

Portfolio 3: Dividend-Focused Portfolio (50%)

The third portfolio is allocated to income producing dividend-based investments. The objective of this portfolio is to generate increasing passive cash flow and long-term capital appreciation. The total target allocation is 50% of my portfolio investments. It is sub-divided into two groups.

  • Dividend-focused stocks (35%): The objective in this sub-group is to invest in individual stocks/companies that provide consistently growing dividends.
  • Dividend ETFs/CEFs (15%): The objective for this sub-group is to capture the diversification benefits of dividend-based stocks.

Majority of the discussion on this blog spot will be on my dividend-focused portfolio. Depending upon the relevance of a given topic or investment vehicle, occasionally, I may also discuss about my other two portfolio investments.

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Dividend Tree Investment Principles and Rules

11 December 2008 Dividend Tree Investment Process 7 Comments



In the earlier post I discussed about the goals that I have for my dividend portfolio. In order to achieve that goal, I have come up with few investment principles and rules that I follow and strictly abide by. While I have been dabbling with investing for sometime now, I always had certain criteria at the back of my mind. I never had it formalized and documented resulting in lack of investing discipline. Therefore, in this post I will present (and hence formalization) my investing rules and regulations. I came up with these rules after quite a bit of reading on personal finance and understanding the implications on my financial goals. These are the rules that I use for managing my dividend portfolio. The dividend tree investment principles are:



1. Maintain portfolio asset allocation that is diversified in asset class, industry sectors, style maps, and geographical region.

2. Focus on growth of portfolio’s dividend cash flow – companies that consistently pay and grow dividends.

3. Invest in companies that I understand, has good fundamentals, and industry leading position.

4. Make use of ETFs and/or index funds for asset allocation purpose.

5. Any individual security should not be more than 5% of dividend portfolio.

6. Buy only at discount – do not buy at historically high levels.

7. While buying a security do following:

- Identify the role it plays in the dividend portfolio.

- Monitor its progress with respect to its role.

- Exit the security from dividend portfolio if it does not meet its role.

8. Dividend growth investing is long term process. Do not react on media news and sky-is-falling scenarios. Be patience and remember that “slow and steady wins the race”.



These rules provide me the framework for my portfolio management and help me adhere to my overall objective. Since this blog spot is also a platform to continue the learning process, I will be open to adapting these rules, depending upon comments and feedback I receive from like-minded individuals.

Dividend Tree Investment Goals

8 December 2008 Dividend Tree Goals, Investment Process No Comments

If I do not know where to go, how can I start the journey? This seems to be a very simple question we face day-in and day-out. But when it comes to investment plans, in general, most of the individuals fall short in identifying the defined final destination. In this post, I will discuss what is my vision and what would I like to achieve in my dividend portfolio. I have started planting the dividend seeds. Only time will tell whether I can reach that goal, and grow the tree with dividend fruits।

Since the name of this blog spot is Dividend Tree, here I will focus on my goals for my dividend-based portfolio. It is to use my savings to generate a stable and sustainable stream of passive cash flow. So why not just use savings, CDs, and/or other fixed income vehicles? Well, a $100K invested in CD’s and/or savings will generate at the most 4% or 5% interest income. Additionally, it does not have potential to increase the value of my capital. Instead, if I make investments in fundamentally strong companies which consistently pay and grow (y-o-y) dividends, then I will not only have an “increasing” passive cash flow but also have a potential for capital appreciation।

To begin with, I am targeting to have an annual dividend-based cash flow of $30,000 by year 2020. I came up with this number after analyzing and modeling some of the past historical data for few blue chip companies (e.g. JNJ, PFE, GE, BAC). While I plan to discuss this model sometime in future post, the model showed that with consistently growing dividends and by continuously reinvesting it, this level of cash flow is an achievable target। Since this is based on past historical data, I acknowledge that it may not be possible to repeat such scenarios in future। However, I have identified a tree that I want to grow, so that I can plant the seeds now.



Time will tell whether I can grow my tree of dividends. For now, I have started planting the seeds, and have started my efforts to grow it.



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Dividend Tax Hike? Don’t Sweat It! (Wall Street Daily, 4/17/12)
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