As a long-term dividend shares investor, I’m a firm believer that it’s far easier to save your hard-earned cash when you have a purpose for that money.
For some people, that might be as simple as wanting a better standard of retirement. For others, it’s perhaps a safety net for quitting an unloved job.
As for me, I’m an avid explorer, and suspect I will be for a long time yet. So, the idea of investing in dividend shares to pay for my travels had me hooked from the start.
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How do dividend shares pay for my holidays?
The theory of using dividend shares was pretty simple. I planned on investing in enough shares so that the total dividend payments would pay for my travels. And since I wouldn’t touch the underlying investments, they would continue to do so each following year.
So, I started saving money each month, and buying good quality dividend-paying companies. It wasn’t always easy to find the money to save or to know which shares to pick.
And undeniably, it was hardest at the start, when I was saving hard but not seeing much happen. But as any Fool knows, investing is very much a long-term game. It all became far more interesting when the numbers started to add up after a few years.
These days, my dividend portfolio produces enough cash to pay for my trips away every year — now that was worth saving for!
What makes a good dividend portfolio?
When assessing what investments to include in my dividend portfolio, I have a few simple guidelines I look to follow.
- Consistency — are there any gaps in the payment history?
- Growth — are dividends increasing steadily over time?
- Diversification — will this investment help diversify my portfolio?
Following these principles, I now own a wide range of income-paying investments. Usually, I like to have between 10 and 15 different assets. And in that group I have both individual shares, like BP, alongside dividend-focused ETFs such as S&P Euro Dividend Aristocrats.
Why is it so important to have a range? Well, dividends are not guaranteed. But, if a company does cut its dividend, the average dividend yield on my portfolio will fall less when diversified than if I only own one or two shares.
But how did I know how much I needed to save?
How much do I need to have invested?
When working out how much I needed to have invested, it’s the average dividend yield of my portfolio that matters.
For example, my original investment portfolio has grown over time to have an average dividend return of around 10%. That means that if I have £40k invested, the equivalent of two Stocks & Shares ISAs, I will likely generate around £4k each year.
Even with inflation and the cost-of-living challenges, that still gets me a good break away to somewhere warm and sunny.
It’s not completely work-free and I still need to re-evaluate each position regularly. I like to read a diverse range of share analyses, like at The Motley Fool. That means I can swap out any under-performers for better quality investments.
That effort all seems entirely worthwhile when I’m walking down the beach towards a chilled beer. Now that’s happy travels!
