Building A Dividend PortfolioA great time to build a dividend portfolio is when the stock market is suffering from the after effects of a crash. A significant stock price decline will hurt and potentially kill off many small firms. It is the nature of life and the world that after abundance comes scarcity. After a huge market climb over many years, there will come a period of decline. These times of decline often prove to be poor times to own stock in small companies who are either not very well established as businesses or are only just profitable. During a recession, these businesses will be put under significant pressure and may fail. Those that bought their stock near the top of the market will very likely suffer massive financial losses if they hold their stake long-term. History shows that prolonged periods of stock market decline can be brutal to both stock and bond holders - if they bought at the wrong time and held on for better days. However, at the same time, many of the larger companies in the market will be trading at prices that offer significant value and provide the opportunity to an investor to build a successful dividend portfolio. An example might assist... In 2001, your author purchased shares in Lloyds Tsb, one of the largest banking companies in the UK. During the 'tech boom', the share price had been bid up to around £11. As prices fell across the entire market, banking stocks were also impacted. Your author purchased some shares at around £4.50 each. However, the company was still paying a dividend that related to an £11 share price. In fact, the dividend payout was not reduced by the firm until around 2008. The price continued to fall to the region of £2.60 per share. Alas, your author was not that insightful! But the holding still paid out a dividend of around 8% of the amount invested. Considering that the period 2000 to 2005 saw some of the lowest interest rates in history, an 8% yield has proved to be impressive. Added to this, the market and UK banking stocks then rose and for a time the shares traded at well over £5 each and have been as high as £6.50. In short, at poor times in the market, it is an ideal time to buy big and established companies and build a dividend portfolio. Of course, the financial and banking crisis of 2008 onwards was not nice to the sector globally. The bank had been run quite conservatively until a government led merger with another major UK player, HBOS, brought the company to it's knees. At their lowest, the shares traded at around 25 pence each in 2011. What a downfall. Hopefully, that tale of woe will not put you off from looking from bargains with a high dividend yield in times of stress in the markets. In short, it is possible, if you purchase at the right point in the economic cycle, to build a very high paying and relatively low risk stock portfolio. Self restraint is one of the major requirements. Other dividend related pages are:
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