Investing in US Dividend Stocks: How to Build a Portfolio That Pays You Every Month Like a Salary
5 min read · · Korean original
Contents 5
I don't think the US stock market has ever been as hot as it is these days. The US is, of course, a superpower with enormous wealth, but it's also true that many great companies are based there.
Personally, I like investing in US dividend stocks. That's because they let me expect slightly higher income than deposits and bonds while also expecting gains from rising share prices.
In this post, we'll look at a list of representative US dividend stocks, along with how to build a so-called 'US dividend stock portfolio that pays you a salary every month,' which lets you receive dividends steadily every month.
How to Pick Good Dividend Stocks
What makes a good dividend stock? The answer becomes clear when you think again about why you invest in dividend stocks. Many people who invest in dividend stocks want to generate steady, stable cash flow, even if it takes a while. In other words, if you're looking to make money quickly in a short period, dividend stocks aren't a great choice.
However, if you set aside a bit of greed and approach it with the mindset of letting time absorb the risk, dividend stocks can be a pretty good place to invest. When evaluating dividend stocks, people usually look closely at 1) the dividend history and 2) the dividend growth rate. Let's take a closer look.
- Dividend history: You should check how long the company has been paying dividends. A company that has paid dividends for a long time is relatively stable, and this shows that it is willing to keep returning profits to shareholders.
- Dividend growth rate: You should also check whether the dividend rate has increased over the period the company has been paying dividends. Companies whose dividends grow at a steady rate every year tend to have strong growth potential and to value shareholder returns.
To sum up, before selecting dividend stocks, you should always check the company's past dividend payment record and its dividend growth trend. This lets you pick companies that meet your expectations more reliably.
The Ranks of US Dividend Stocks
As we saw above, the key to dividend investing is the dividend history and the dividend growth rate. Based on these, dividend-paying companies can be classified into ranks: 'Dividend Kings,' 'Dividend Aristocrats,' and 'Dividend Champions.'
1. Dividend Kings
Dividend Kings are companies that have steadily increased their dividends for 50 years or more. Companies in this group have stayed stable over a long period while continuously returning profits to their shareholders. Representative Dividend Kings include the following.
- Coca-Cola (KO): The world's most famous beverage brand, which has raised its dividend for more than 60 years.
- 3M (MMM): A multinational manufacturer active across a wide range of industries, which has increased its dividend for more than 60 years.
- Procter & Gamble (P&G): Famous for brands such as Febreze, Downy and Gillette, it has steadily increased its dividend for 68 years.
- Johnson & Johnson (J&J): A well-known company in healthcare and consumer products, which has raised its dividend for 62 years.
2. Dividend Aristocrats
Dividend Aristocrats are companies that have steadily increased their dividends for 25 years or more. These companies are considered the most trustworthy dividend stocks after the Dividend Kings. Representative Dividend Aristocrats include the following.
- AT&T: A leading company in the US telecom industry, with a record of more than 25 years of dividend increases.
- Exxon Mobil (XOM): A major energy company with highly stable dividends.
- PepsiCo (PEP): Alongside Coca-Cola, a company with world-class brand value in beverages and snacks.
- Kimberly-Clark (KMB): A well-known US consumer products company that provides stable dividends.
3. Dividend Champions (Dividend Achievers)
Dividend Champions are companies that have steadily increased their dividends for 10 years or more. These companies have strong growth potential and are worth considering for future dividend investing.
- Apple (AAPL): A global tech company that has steadily raised its dividend in recent years.
- Starbucks (SBUX): A global coffee chain that keeps increasing its dividend.
- Microsoft (MSFT): A leader in the IT industry with a record of more than 10 years of dividend increases.
- Costco (COST): A large retail chain that has steadily increased its dividend along with stable growth.
How to Build a Dividend Portfolio That Pays You Every Month
So far, we've covered the key points of dividend investing along with a list of top dividend stocks. Now it's time to actually build a portfolio. By considering when each company pays its dividends, you can put together a 'US dividend stock portfolio that pays you a salary every month' like the one below.
| Dividend months | Dividend stocks |
|---|---|
| Jan, Apr, Jul, Oct | Coca-Cola, Philip Morris, Nike, JPMorgan |
| Feb, May, Aug, Nov | P&G, Apple, AT&T |
| Mar, Jun, Sep, Dec | Johnson & Johnson, Microsoft, NVIDIA |
| Monthly | Realty Income, AGNC Investment |
One of the advantages of dividend investing is the compounding effect. You can consider taking the dividends you receive and using them to buy more shares of the same company. For example, if you hold 1,000 shares of Coca-Cola and reinvest the dividends, your share count grows, and your dividends naturally grow along with it.
Earning Stable Returns with Dividend ETFs
Besides investing in individual dividend stocks, you can also use dividend ETFs. With an ETF, you can invest in a selection of dividend stocks without having to manage a dividend portfolio yourself. Representative dividend ETFs include SCHD and JEPI.
Risks and Precautions in Dividend Investing
Dividend stocks provide stable income, but there are a few things to watch out for when investing in them. First is the risk of falling share prices. Even if you receive dividends, you can lose part of your principal if the share price drops. So before investing, you should also take the risk of losing principal into account.
You should also keep an eye on changes in a company's dividend policy. The dividends a company pays are not a legal obligation but the company's own decision. So if the company's earnings deteriorate or its management policy changes, the dividend may be cut or eliminated.
Finally, there's the tax issue. Dividend income from US stocks is subject to a 15% withholding tax. In addition, if your annual financial income exceeds KRW 20 million, your dividend income is included in Korea's comprehensive taxation of financial income, which may result in additional taxes.
