The perfect dividend portfolio

The perfect dividend portfolio (if such a thing exists), what would that look like? It depends on what you define as perfect. In this case I want to look at a portfolio that “perfectly” reflects the expenses it needs to cover within a household. Say what?

The dividend expense challenge

I was intrigued by the following Tweet by Justin (Root of Good) and the following correspondence with DividendStacker and myself.

I wondered, could you set up a complete dividend (growth) portfolio that would cover it’s own expenses within a household? So Disney covering your streaming services, Canadian Utilities paying for your heating and electricity, AT&T paying for your cell plans and internet, etc. What could that portfolio look like and how much wealth would a Dutch person need to make this work? Taxes included! Time to find out.

Household expenses

I’ve made up a “typical” household (for 2 people) expense overview for a €25.000 a year in expenses. But, due to wealth taxes and withholding taxes, we need more dividend income to allow for a net €25.000 disposable income. For simplicity sake, I’m assuming a overall effective taxation of 15% on total received dividend. This translates into about €4.411 in additional expenses. The grand total is thus €29.411 that we need in passive (dividend) income.

The reference household is as follows:

The “Perfect” dividend portfolio

So “perfect” should technically read “perfectly matched with the expense category”…. 🙂

Anyhow, the portfolio as shown below is what I came up with after some digging around. I primarily tried to have dividend aristocrats, kings and champions from various countries (including the Netherlands, obviously!). If I could not find suitable companies, I lowered the standard until I found some. If you have some suggestions as to improvements, don’t hesitate to leave a comment!! I didn’t do a detailed analysis per share to see if they would be the “perfect” one to fit the category.

The “Perfect” dividend portfolio

As you can see, if you want a dividend portfolio like to be able to live in the Netherlands, you need a lot of money! This is driven by two factors, the current low yield (3.15% at close of business November 18, 2019) and the (wealth) tax impact.

Portfolio Distribution

If you shuffle some of the numbers around and add some up, you get the following portfolio distribution (with arbitrary naming convention, just to more closely match the household expense breakdown):

The “Perfect” dividend portfolio distribution

And graphically represented:

The “Perfect” dividend portfolio distribution in pretty graph form

Some notes

Share prices where taken at close of business November 18, 2019. The number of shares was rounded up in all cases. The exchange rates were rounded to CAD1.46/€ and $1.11/€. For the streaming service of Disney I assumed Dutch prices and a monthly payment plan (so not the yearly lower fee you could get, I know, very unfrugal!)

Despite only having 25 different companies, the diversification is not even too bad! That being said, the “quality” of dividend paying companies do vary by sector. Some sectors can be filled with many solid companies (such as utilities and consumer staples). However, in the vacation / leisure category (which is a big part of the household expenses) it’s much harder to find “stable” dividend paying companies. It probably has to do with technically being discretionary spending, which is depended on how well the economy is doing obviously. Vacations are the first to go when people lose their jobs, for such companies it’s harder to have a stable dividend.

What do you think of the portfolio? Taking into consideration that this is just for fun and not a recommendation to buy!!!

Please follow and like us:
error

15 Comments

  1. This is a really cool concept CheesyFinance. You could do a pretty good job in Australia on the ASX with most expense categories, although we don’t have any listed water utility companies here.

    A while ago we did actually think about investing in a high-end hotel business to do exactly this, but we figured it is just best to make the best returns/dividend income and spend it how we want.

    Cheers,
    Mr DDU

    1. Completely agree with that last statement!! Albeit a fun idea, you really should only pick companies that have a solid record and products/services that people will always need.
      Ciao.

  2. Oh,that looks fun! Just something to perfectly scratch my OCD itches.
    It feels like there’s an added risk using this kind of strategy, though.
    Company has financial problems -> raises consumer prices/lowers dividend payout -> you need more dividends to cover the costs -> you buy more stock -> you just invested in a company with financial problems.
    I once bought stocks from the company I worked. Same effect, learned a lesson 🙂

    1. Oh, I would definitely not restrict to just these 25 shares or a similar portfolio distribution. That being said, about 15 of the shares are solid companies with long dividend streaks and worth having in a dividend portfolio. We actually have a few of them in ours. Also, I’ve seen portfolios of people that only invested in 10-12 companies, the ones of which they understood the business model, saw long-term potential and used the products themselves, and came out with 7 figure wealth’s. So it’s not entirely possible either!
      Thanks for the comment! Hope you are well on your way to be able to “uitklokken” 😉

  3. Fun article! You took that tweet and ran with it. One of my favorite investing strategies is putting money into items & companies I use. If I use it, and I see a lot of others using it, it probably isn’t a terrible business model right? This puts that to a true test. Nice work!

    1. I like your reasoning, especially if you have the items and companies you use provide primarily “basic” products and services. That should be a solid business model for your dividend portfolio!
      Thanks DS.

  4. hey Cheese

    neat post. I’d love to get big enough positions in companies to cover their overall expenses.

    I think my enbridge position is the only one to cover its Bill’s.

    Although our solar panels do cover our hydro Bill’s and then some.

    The mortgage would be a huge one to cover. haha.

    cheers cheese!

    1. That mortgage eh?! Your going to need lots of REIT’s, Banks and Mortgage insurers to cover that one 😉 “Enjoy” the solar panels, they’re not a bad investment actually!
      Thanks for the comment Rob!

  5. Hehe, that tweet is interesting. I actually had a similar idea for Belgian movie theater company Kinepolis (ticker: KIN).
    For this year the dividend was set at 0.92 or 0.644 net per share. I spend on average about 50 euro per month on a KIN night, so I need 600 EUR worth of dividend to get my money back. At 0.644 EUR I need 932 shares, at today’s price that is 35 653 EUR in KIN stocks you need.

    I also like your approach to the perfect dividend portfolio. It’s also in line with what I’ve been thinking about as well. I’m actually planning on writing something soon.
    It’s really too bad that you need a sh*tton of money to achieve this portolio. All in due time, right? 😉

    1. Oh crap, that’s a lot of money to fuel your movie habit. Disney is cheaper 😉
      It is a lot of money indeed to make it work. It’s even worse in Belgium with that high dividend tax!

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.