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.
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.
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.
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):
And graphically represented:
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!!!