How We Choose the Companies in Your Portfolio

Today we’re going to cover how I choose the companies that end up in your portfolio. Before we get started, keep in mind that there’s a lot that goes into selecting the right mix of stocks, bonds, and other financial products that come together to address your financial needs. Today, we’re going to look at only one, but it is central to potentially creating and protecting a growing stream of income.

In our last article we discussed what our Dividend Focus Strategy is and how it works. If you haven’t watched it yet, I’d encourage you to start there.

In short, dividends are a company’s way of sharing profits with shareholders. This typically means a company will send shareholders a check on a regular basis as they return profits to the owners (shareholders) of the company.

These types of companies are the foundation of our strategy. But not all dividend-paying companies are worthy for inclusion in your portfolio. Instead, we have to dig deep to find the right companies. Here are some of the characteristics we look for:

1. First, we like established “blue-chip” style companies. We prefer ones with long track records of doing well in times of both feast and famine.
2. We like “every” companies. Those that sell essential products and services to everyone, everywhere, every day. Think ketchup, toothpaste, medicines, telecommunication, etc.
3. We also value ingenuity, creativity, and innovation, the kind of things that keep companies growing and increasingly relevant.
4. When it comes to dividends, we want the company to have a long track record of consistently paying dividends and consistently growing those dividends. As dividends grow, whether you are reinvesting them now, or taking them as income later, growth of income is essential for maintaining your lifestyle.

These types of companies are part of an elite group, and that’s why we want them in your portfolio for the long term. I don’t believe in “renting” companies, chasing after hot stocks and the quick buck. I believe in owning long term winners with proven track records. They may not be rockets to the moon, but they are likely to return solid, growing dividends and profitability to those with patience.