This is the eighth in a series of articles elaborating on the 9 Steps To Build and Manage a Dividend Portfolio.
Managing a dividend portfolio is a fairly low maintenance activity. The purpose is to have low portfolio turnover to avoid trying to time the market, to avoid unnecessary trading fees, and to avoid unnecessary taxation, while all the while building a larger portfolio and increasing levels of passive dividend income.
But buy-and-hold doesn’t mean set-and-forget. It’s important to routinely review your investments, make note of any changes, and to invest accordingly. Taking time to determine which investments you’re interested in adding more capital to, and which investments are deviating from your investment thesis or not meeting your expectations (of fundamental performance, not stock performance), or becoming overvalued, allows you to streamline and enhance your portfolio and returns.
I spend more time on investing than I would estimate that the average dividend growth investor does (or should), since it’s a hobby of mine, and I write about it. Maintenance for my own portfolio is fairly low, however.
Regularly, give the portfolio a quick check to look for news and updates. Stock price changes matter little for long-term investors, but a large stock price swing either way is an indication of a piece of news that might be worth reading. Google Finance is a good tool for this, because you can scan your portfolio prices and top portfolio news stories on one page, and if you have an email account there, it can all be checked quickly within one log-in. How often one does this is up to the investor (and likely dependent on whether the investor is a hobbyist or if they only invest for the sake of the outcome), but there’s no reason to get too crazy about checking stocks.
Occasionally, give the portfolio a more thorough check by looking through valid news on your investments, and possibly checking various useful sources of opinion (I enjoy Seeking Alpha and Morningstar, in particular, as well as fellow dividend blogs). If possible, add fresh capital to the portfolio on a regular basis, and keep a “watch list” or a “buy list” so that you have stock ideas ready for purchase rather than making up your mind on the spot when fresh capital comes in.
Annually, give each investment a thorough re-analysis. I do this throughout the year, so that once per year, I have analyzed my entire portfolio again to ensure that my companies are still in line with my investing thesis. In addition, I vote in annual shareholder proxies for my holdings, and I particular advocate doing this because healthy capitalism depends on prudent corporate governance. One of my reasons for starting this blog was to hopefully make my time more useful by spreading my discovered facts and opinions with others, to help stabilize my commitment towards thorough stock analysis, and to be part of a community where I can continue to find good ideas. This is a reason why I typically recommend a fewer number of portfolio holdings than some other individual dividend investors might- having a moderate amount of positions makes portfolio maintenance more reasonable, makes voting less time consuming, and allows investors to have a more thorough understanding of their businesses.
Knowing when to sell a stock can be difficult. I keep my portfolio turnover especially low, but still reduce or eliminate a position from time to time. Sometimes my risk preferences change, or a smaller holding is overvalued and I have a significantly better opportunity in mind, or more rarely, a company deviates from my original investment thesis. A little bit of rebalancing to take money from high-performing richly-valued stocks and allocating the capital towards stocks you are currently more favorable toward can be a good idea, but only if the expected rate of return of the new investment is considerable compared to the sold asset, even after fees and taxes are taken into account.
For a more in-depth article on selling stock, see my previous article on the subject: 3 Reasons To Sell a Dividend Stock. When it comes to pruning a portfolio, the saying of “less is more” typically holds true, but failing to prune at all is not optimal.
How much time you decide to spend on investment is up to you, and mainly should depend on your goals and your level of interest. These are my suggestions and experiences. Fortunately for individual investors, dividend growth investing is among the lowest maintenance of all investing strategies, next to pure indexing.