How I choose dividend stocks for my main portfolio

My main portfolio contains 85% of my investments. It is completely devoted to long term investment in solid high yield dividend stocks. I only invest in stocks that I think I will be able to keep for at least ten years but my goal is always to never sell a stock once I have added it to this portfolio.

This does however not mean that I never sell a stock. I do regular overviews of my portfolio and any stock that does not meet my requirements to be in the portfolio will be sold. I do not keep stock in companies that I do not think have a future. To date I have never been forced to remove any stock from my portfolio and I do believe that I will not be forced to do so in the future either as long as I do my research before I add a stock to my portfolio.

Criteria to be added to the portfolio

A stock needs to fulfill certain criteria to be considered to be added to this portfolio.

  • It needs to pay high yearly dividend. At least 3% although 5% is preferable.
  • It needs to be a well established well ran company.
  • They need to sell a time tested product. (It can not be a fad)
  • They should be relatively recession proof.
  • They need to be growing
  • They need to have a history of high dividends. At least 5 years. I might make exceptions from this rule in certain cases if the company has strong growth.
  • The yearly dividend have to increase from year to year (Disregarding one time payments and spin offs)
  • The company should be associated with low political risk. I.e cigarette companies is vulnerable to new legislation, the same goes for gas companies.

I try to diversify my portfolio by adding stocks in different industries and based in different countries. I do however diversify my investments less than many advisers would recommend. I do this to keep my dividend high and due to the fact that the stocks I chose are relatively low risk to start with.

How to find stock

I always start by looking at a list of the stock with the highest dividend yield on a certain stock market. It easy to find list likes this by googling. It easy to find list of the highest yield stocks on a certain market as well as they highest yield stock overall. Both types of list have their value. List that shows the global dividend kings can give you a good start to find good stocks for your portfolio. Lists with the highest yielding stocks can be very useful when you want to diversify your investment between different markets. By buying stocks in different countries you reduce your risk.

Once I have the list I remove all stock that do not meet my dividend requirements. I then do a deeper analysis of the remaining stock.

Evaluating the stock

When I evaluate the stocks I am not looking to find a stock to my portfolio. My goal is the opposite. I try to eliminate all stocks and discover that they are not suitable for my portfolio. I only want the very best stocks in my portfolio. I therefore want to eliminate any stock that is not worthy to be in it. I rather buy more stock in the companies I already have in the portfolio than adding a company that is not good enough to be in the portfolio.

The first thing I do is to look at the key figures. Does everything look good or are there any red flags. Is the profit growing. How is the profit margins. Increased total profits with lower profit margins can be an early warning sign that the company will have a harder time in the future. I am looking at all data points I can find.

I always avoid companies that have shrinking profits but growing dividends. This is a sure sign of a company that has run out of ideas about how to grow. A company that will die a slow death and can bring you down with it.

Does the company have a good history of increased dividends?

After that I look at the CEO, board and largest shareholders. Is that CEO and board well established within the company or have the recently been replaced. If the company has a new CEO then I try to research the work he has done previous to becoming CEO of the company in question. I always make sure that there are no new large stakeholders. If there are then I look at what type of owner they are. If it is a passive owner that will allow the company to continue business as usually or if it is one that is likely to try to force changes to improve short terms results.

When I know that the company itself is healthy and well managed then I look at the industry they are in and the products they sell. Are they too dependent on one product (common in pharmaceutical companies) or do they sell products that might face legal restrictions. I only invest in companies that have a good mix of products and that introduce new products that will keep them on top.

If a company contain all the quality to be added to my portfolio then I start buying stocks in it. I do not worry about buying at the right time since I am a long term owner. The exact price is less important than that I am able to add the stock to my portfolio. If the stock price goes down a lot then that is a chance to buy more stock.

My main portfolio currently contains the following stocks

The profits in the table below does not contain the dividend I have earned from the stock. The dividend yield can in some cases be higher than the appreciation in value.

Symbol Name Purchase price Last Trade Price Change Change (%)