There’s no shame in reaching 45 with no savings. Funds may be tied up in a property, or have been used for a variety of different purposes over the years. Yet for planning for the next couple of decades through to retirement, any investor could still look to build up a portfolio. Here’s how I’d use dividend stocks to achieve this goal.
Getting my ducks in order
To turbocharge my savings going forward, I’d want to follow a strict investing plan. To begin with, I’d want to create free funds to invest. This means I’d likely cut back on expenses, or see how I could boost my short-term income, to provide money at the end of each month.
I accept this is easier said than done, but it’s the first step I’d need to take. With the surplus money, each month I’d pick my favourite dividend stock and buy it. Over the course of a year, I would have built up a diversified portfolio, which I could then build on going forward.
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Finally, when I receive the dividends from the firms, I’d reinvest this back into the market. This means the cash isn’t sitting idle. Rather, it will enable my returns to compound at a faster rate in the years to come.
A great example
One stock I’d include within the first year is Bakkavor Group (LSE:BAKK). Even though the stock is down 14% over the past year, it has been strong recently following the release of a trading update.
Ahead of the full-year results next month, revenue for last year gives me a good early indicator. It was up 5.3% on a like-for-like basis globally. The company’s Chinese market in particular had a strong rebound, with revenue up 32% versus the previous year.
Profits are expected to be in line with the guidance provided by the company, which bodes well for the dividend this year. At present the yield is 7.65%, already at an attractive level. I don’t see this being under threat anytime soon.
The US market is a bit concerning, with revenue dropping by 8.4% in that region. The business says this is part of a shift from revenue to profit growth. I sort of see where the firm is coming from, but to grow profits you need to start with good revenue. This is a risk going forward.
Diversifying the portfolio
Bakkavor Group is a food producer that trades globally. As part of aiming to grow my dividend portfolio, I’d add in stocks around it that are relatively uncorrelated. For example, I’d consider adding a utility company such as Pennon Group (6.52% dividend yield currently). I’d also look at getting exposure to property, such as via Londonmetric Property (5.20% dividend yield).
Over time, the diversified nature of the portfolio should enable my dividend income to be more reliable. If one sector struggles, another sector could be outperforming and make up for it.
