7 Dividend Investing Rules for a Growth Portfolio

Having investing rules is critical as it is what keeps you from following the flock and making questionable moves. How often do you resist buying a hot stock? With some investing rules, you can avoid falling for hot tips or becoming emotional.

I will be the first to admit that it has taken me a few years to really sort out my rules. The goal is not to have a long list but to have some core rules that you cannot ignore when investing. It keeps you honest with your goals. After all, investing is critical to build wealth, you want to avoid mistakes.

7 Dividend Growth Investing Rules

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Rule #1 – Invest only in what I know and understand

Peter Lynch said it best, if you cannot explain the business so that a child can understand it, then it’s probably too complicated. This mantra is the first filter I apply to the companies I add to my portfolio.

It’s important to also differentiate between understanding what their business is versus understanding regulations and accounting procedures. Understanding the business means that you know how they make their money. For example, a railway stock, such as Canadian National Railway TSE:CNR, provides transportation services using the railroad and they get paid for taking goods from point A to point B. That’s all there is to know in understanding the business as opposed to trying to figure out what it means to cross the border.

By understanding the business at a high level, you can get an understanding of the necessity of the business, and how they intend to make money.


Rule #2 – Invest in companies that provide necessities

There are services or products in the world that we cannot live without, those are sustainable services with a consistent or growing demands. For example, financial services, oil & gas, food, utilities and so on. You can rationalize that something is going to be needed even though it’s not an essential product or service to our lives and that’s fine but your core portfolio should have companies with essential and necessary products.

Once those sectors or necessities are identified, you can start focusing on the best picks. The strength of this rule is that you can feel confident this company will be around due to the nature of their business. Often times, such companies can be part of an oligopoly and be a blue chip stock.


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Rule #3 – Only invest in dividend growth stocks

I have made it a focus that I want to be paid when markets go sideways and to that end, my investments must pay a dividend but more importantly, it must pay me a growing dividend.  I do not own REITs because it doesn’t grow distribution with consistency. So, I want to get rewarded with a dividend but with a growing dividend that beats inflation. In my growth portfolio, I aim for an annual 10% dividend growth but in retirement, I can be satisfied with 6%.

Do what you can to have enough to DRIP. I know it’s hard when you start but buying 1 share in 10 stocks is not really diversifying, it’s filling the coffers of a discount broker with fees.

Related: Why Dividend Investing?

During the accumulation phase, when you have a steady income, focus on dividend growth stocks. When transitioning to the income phase where you no more receive a steady income from any form of employment, you can look at more income-focused investments.

My stock selection process and approach have allowed me to beat the index since 2010. My portfolio and dividend tracking spreadsheet is organized to easily track your ROR.

Get your list of STRONG Dividend Growth Stocks

Rule #4 – Focus on companies with an economic moat

I look for companies with an economic moat. More often than not, those are large blue chip companies. I tend to focus on medium and large cap companies. Anything under $10B is a little small even if they are developing an economic moat. Companies with an established economic moat will often have grown to be large cap companies. To that end, I look for an economic moat with a medium to large capitalization.

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Rule #5 – DRIP everywhere

I want my money to work, so I let it re-invest itself. This rule will change in retirement but during the wealth accumulation phase, I DRIP it all. It’s a form of compound growth. Many companies also offer a discount when you DRIP, so you can take advantage of a price discount of 2%, 3% or even 5% for some companies.

If your money is at work by buying stocks with the dividend then you are covered. If you wait a long time before putting the money at work because you get $100 per month, then your money is not working. When I earn $1,000 in dividend per account, I will be content to not DRIP and buy stocks selectively but I am far from that.

As long as you purchase dividend growth stocks, reinvesting in those companies should be simple.


Rule #6 – Avoid Country Bias

This rule is primarily for Canadians, or other countries with small industries. The Canadian stock market is generally exposed to financials, energy and basic materials stocks. I don’t invest much in energy and I stay away from basic materials due to rule #1.

It doesn’t leave much to buy in Canada. If you look at my portfolio, you will see my 14 Canadian holdings compared with closed to 20 US holdings. You do not need to buy individual stocks in the US, you can simply buy the S&P500 index in Canadian dollars.

If you want to buy individual stocks, you must learn about the Norbert Gambit with DLR for currency conversion.


Rule #7 – Limit Your Holdings

I have set my number of companies to own and manage at around 30. Any more than that and it’s too much to track. I am already there so if I intend to take a new position, I need to sell one. I am also at the point where I simply need to add more money to existing holdings. This number must really come from you and what works for you.

Related: How many stocks should you own?


There is an obvious one that I have not added but it’s a hard one … Buy Low, Sell High. The reason I have not mentioned it is that it can be hard to always buy low since you cannot predict what the markets will do. If the market drops for whatever reasons, you can’t beat yourself over it. If you have cash, you can add more but I prefer to rely on my sector allocation to choose where to put my new money. To be a value investor is also quite hard. It’s not easy to identify a good price for a company as it most often trades on future earnings. IF this was easy, why would analysts get it wrong most of the time ?!? For some companies, you sometimes have to buy near 52-week high, that’s just how well those companies do.

Analysts learned their skills from various education program but more importantly, they learn the best investment analysis tricks from their workplace by being trained by an experience investment analyst. If this is a passion of yours, the income can be sky high. You can find investment analyst job on Jooble as an example and see what the qualifications are. By looking at the qualifications, you can buy books in the space to hone your own personal skills. So instead of having to go into the career, you can look at steeling their secrets and applying it on your own. That will mean getting access to tools, primarily investment data to build your analysis which means accessing a platform like Stock Rover.

The rules outlined above allow me to manage my portfolio effectively and make sound decisions. The next step is selecting a stock to purchase on a specific day. The stock selection process brings in another set of rules.

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