I’m super excited to introduce you to my new DSR retirement portfolios. I’ve been working very hard on those two versions (100% Canadian and 100% US) as dividend income and dividend growth don’t always come together. Before I present them to you, let me share with you a few observations.

I am known for my research and interest toward dividend growth stocks.

This is because my investing strategy foundation has been built around companies making more revenues, increasing their profit and sharing the wealth with investors.

However, dividend growth stocks are not always paying a high yield.

I completely understand why many retirees would discard great companies like Disney (DIS), Canadian National Railway (CNR.TO / CNI) or Apple (AAPL). For example, most retirees seek income, not growth. Therefore, even if a company raises its dividend by 10% each year, it doesn’t bring much dough on the table if we start with a 1.50% yield. After 5 years, your yield on cost would be around 2.40%. This is nothing compared to many REITs, Utilities or MLPs paying 7%+ yield, right?

If you need $50K per year, you must invest 714K to get that with a high yield portfolio. On the other side, you will require close to $2.1M if you invest at a 2.40% rate to generate the same revenue. Then again, you can’t compare both. So why any rational investor would work three times harder to save $2.1M when $700K is enough? Because chasing high yield comes with a lot of problems.

#1 High yield could mean high risk too!

There is a fascinating phenomenon happening to young retirees: they don’t save money anymore and they depend on passive source of income to pay for their living. In the case you decided you didn’t want to take care of a leaking faucet on a Sunday evening, you probably invested your money in the stock market. You worked all your life to build this nest egg and you know how hard it is to get there. The last thing you want is to run out of money. You want something conservative to avoid having a heart attack when you look at your quarterly statement. You want something that will generate enough income to keep you happy. This is how the 7%+ yield stocks get very interesting.

The problem with them is that there are no free lunches in finance. If a stock is paying such a high yield, this is because it comes with some risks. If not, why in the world would all the investors not buy shares of this amazing company? If this would happen, demand for the stock would rise along with its price. Then, the yield would come down to a lower level. Therefore, each time you are about to buy a high yielding stock, try to explain why you are the “only” investor interested in this company while major pension plans and other professional fund managers prefer to invest elsewhere.

#2 Inflation will eat-up your revenue

Sometimes, the risk level isn’t that high. The high yield is driven by the company’s business model. The sole purpose of some companies is to run its business and share the rest of their money with investors. This is often the case with REITs, Utilities and MLPs for example. The whole point of investing in such companies is to get a robust source of income with limited hope of seeing capital appreciation. After all, the first thing you want is to get paid each month to support your lifestyle. But what happens when the stock you selected doesn’t increase its payment?

If you are 60 today, you have very good chances to live up to 85. This means you have around 25 years to live on your dividends. If your stocks don’t show dividend raises year after year, your budget is getting reduced by about 2% yearly. You will not realize it until you need $60K and then $70K to maintain the exact same lifestyle. $50K today equals about $80K in 25 years. You will need to withdraw money from your portfolio if your dividend payments haven’t increased. This could jeopardize your whole retirement plan, right?

#3 Too much money invested in one sector leads to an inevitable catastrophe

The epic search for high yielding stocks is like looking for sarcophagi; you may end-up always at the same place. There are a few sectors known for their “generosity”. Utilities, energy / MLPs, BDCs and REITs are more generous sectors in term of payments. What will happen if you invest 40% of your portfolio in the Energy/MLP sector and the oil barrel crashes? What happen if you hold a massive portion of your portfolio into retail REITs and they all fall at the same time?

I’m not only talking about stock price variation here. No matter where you invest, your portfolio value will go up and down depending on the markets’ mood. However, if there is a crisis affecting a specific sector (we can think of the financial crisis of 2008 or the oil crisis in 2015-2016), you may end up  having several companies pausing dividend growth policy or cutting their dividend plain and simple to survive. No matter which kind of investor you are or which kind of investment strategy you pursue, investing massively in a single sector will increase your overall risk.

#4 Dividend Cuts will happen

Speaking of dividend cuts, this is most likely to happen among higher yielding stocks. As mentioned in my first point; the reason why a company pays a high yield is because there isn’t much demand for its stocks (or it is issuing too many units in case of MLPs or REITs).

I recently conducted a search through all REITs in the market. My stock filter posted 400 results. Here’s what I found:

• 192 (48% of them) shows a dividend increase stronger than 2% (beating inflation).
• This numbers drops to 46 (so 11.5%) if I select REITs paying a 6% yield and over.
• 142 (35.55%) of them cut their divided in the past 3 years.

I was shocked to find that about a third of REITs cut their dividend in the past 3 years. This demonstrates how it is crucial that you track your holdings on a quarterly basis (this is why DSR PRO is so popular). But worry not, I worked harder and found great stocks that will meet your retirement plan.

How I made compromises and built a robust retirement portfolio model

With those issues in mind, I started thinking how I could use DSR investing rules to find higher yielding stocks. With additional research, I was able to build a portfolio showing a 4.50-5% yield with a minimum of dividend growth to cover inflation (and more). Therefore, you could use this portfolio with a “4% withdrawing rules” and you should be good to never take money away from your capital.  I’ve also avoided investing more than 20% in a specific sector. This ensures a strong diversification to go through any kind of crisis.

Those portfolios are obviously exclusive to DSR members. All subscriptions give you full access to all DSR features including:

• Our DSR members’ favorite – a unique library of 200+ stock cards (powerful 2 pagers of actionable info on companies you should follow).
• A starting point to ease your mind –  we have 13 portfolio models including booklets and quarterly analysis.
• A fast way to identify undervalued stocks – our Rock Solid Ranking tracks 200+ stocks and provide upside potential.
• An answer to “when should I buy?sell?” – we send you all our trades with our investment thesis behind it.
• Lots of free time to enjoy life – we go through the market to find the most interesting companies and we provide you with actionable content.
• A personal assistant that does all the work for you – we have reviewed over 200 dividend stocks on the site, you can ask us to review any stocks in your portfolio.
• Exclusive webinars; improve your investing skills and have all your questions answered. No sales pitch, no gimmicks, just high value content.
• A risk-free investment – we offer a 60 days No Question Asked Reimbursement Policy
• The best deal for your investment journey – your price will never increase once you become a member.

*prices are in USD.