Building A Dividend Retirement Portfolio: A Real-Life Story by Simply Safe Dividends

Many of us are managing dividend portfolios designed to deliver safe retirement income.

I oversee our Conservative Retirees dividend portfolio, which is designed for people living off dividends in retirement.

Safe dividends, income growth in excess of the rate of inflation, and low volatility are some of the main goals of any retirement portfolio.

Dividend Retirement Portfolio
Photo by stevepb (Pixabay)
Dividend Retirement Portfolio

I have had countless discussions with all sorts of dividend investors about how they became involved with dividend investing and how they approach building a dividend retirement portfolio. Every story and approach is unique and usually provides a few new tidbits of wisdom.

Most recently, I connected with Dividend Sleuth, a popular author on Seeking Alpha who has been investing in stocks for 35 years. He is in the same boat as many of us and was kind enough to share his journey as a dividend investor as well as his current dividend retirement portfolio. I expect you will gain a few new investment ideas and potentially even a new perspective on how to construct your portfolio.

Here is his background, as seen on Seeking Alpha:

“I’m a 65-year-old investor focused on dividends in a Retirement Income Portfolio. I’m not yet in the distribution phase of retirement.

I’ve been a member of the National Association of Investment Clubs (NAIC) since 1982, which now operates as For many years as a volunteer I helped lead workshops to teach tools developed by NAIC to educate investors about how to do basic fundamental stock analysis. I continue to have a strong interest in investor education.

NAIC’s historic “four principles” have been very helpful to me:

1) invest regularly throughout your lifetime;

2) invest in growth companies;

3) reinvest earnings and profits;

4) diversify by industry and size.

Bill Bengen’s “4% Rule” concept inspired me to set a goal to create a retirement income portfolio of individual dividend growth stocks as a way to tap only dividend income from the portfolio as long as possible rather than selling assets.”

Without further to do, let’s learn about Dividend Sleuth’s path to dividend investing.

My Journey as a Dividend Investor

My experience with individual stocks began in late 1981, when I was invited by two older colleagues to help form a new investment club. Our first meeting was in February, 1982, when the Dow Jones Industrial Average was around 800 (Brian’s note: the Dow Jones now sits above 18,000 – talk about the power of long-term compounding). I remained a member of the club for over 23 years until it disbanded in 2005.

Our club was part of the National Association of Investment Clubs, which was formed in 1951 to provide tools for stock study and suggestions for stocks to study through their Better Investing magazine. The organization is now called Better Investing.

The study of public companies and their stocks became my primary hobby and for several years I was a volunteer instructor at NAIC workshops, using an overhead projector (later PowerPoint) to teach investors how to use NAIC’s stock study tools.

NAIC (now BI) developed a tool called the Stock Selection Guide, which plots on a semi-logarithmic graph 10 years of earnings per share, company revenues, pre-tax profits, dividends and price range.

This data provides the basis for estimating a possible high price and low price during the next 5 years. Through public libraries we accessed either Value Line or Standard & Poor’s Reports to find data for the prior ten years. Now, this information is available online from and the Stock Selection Guide is computerized.

I am grateful for my early grounding in fundamental stock analysis provided by this organization. As an individual investor, I continue to serve as a director of the Alabama chapter of Better Investing.

Since 1951, the focus of NAIC/BI has been growth stocks, with 4 principles for investing. The principles have changed slightly with time and today are:

  • Invest a set amount regularly;
  • Reinvest earnings, dividends and profits;
  • Invest in quality growth stocks and equity mutual funds;
  • Diversify your investments.

Even though the focus of my early years as an investor was on growth stocks, I’ve always had a healthy appreciation for dividends. The Stock Selection Guide includes an estimate of the dividends that will be received in the next 5 years and this calculation is added to the stock’s expected price appreciation to provide an estimate of total return. From my earliest days as an investor, I recognized the importance of dividends.

One of my favorite early stocks was a New Plan Realty, a real estate investment trust. Though no longer a public company, it was at one time was the largest REIT in the United States. This REIT was in our club portfolio and I purchased shares for my IRA.

During New Plan’s best years (1980s and early 90s), the trust increased its dividend each quarter. REITs do not pay federal income tax if they distribute at least 90% of their income (more on REIT taxation here), and I realized very early that this gives REITs a 35% “head start” over tax-paying corporations.

Around 2007, at age 56, I began to give more thought to retirement and how I might use my 20+ years of investing experience to provide supplemental retirement income. I created a file folder for “Retirement Planning,” and began clipping retirement-related articles from Better Investing, Forbes, Fortune, Barrons and the Wall Street Journal.

One of those articles was by Bill Bengen, who developed the “4% Rule,” which suggested a target distribution of 4% of one’s retirement account during the first year of retirement, with the goal of growing the corpus and continuing to draw from dividends and capital gains.

Dividend stocks were always well represented in my portfolio, but after reading Bengen’s article (and others’ commentary about it), I decided to focus 100% on dividend stocks, with the goal of assembling a diversified portfolio that yields about 4%. Prior to the distribution phase, I would reinvest dividends to grow the IRA.

My plan, at least in the first years of retirement, was to limit distributions to dividend income (to avoid selling securities). I was aware that tax law requires minimum distributions (RMD) from IRAs beginning at age 70.5, and this would eventually necessitate the sale of some securities, but that was (and still is) several years away.

Some retirement planners speak of income “buckets” or perhaps a “three-legged stool” as a way of describing different income sources for retirement. I have made contributions to Social Security since the early 1970s, so that is one potential “bucket.” I am scheduled to begin receiving Social Security benefits in December, 2016, when I reach age 66, which Social Security considers my “full retirement” age.

I retired in 2010 after 40 years as a pastor. I am very fortunate to have a pension as a result of those years of service. I began making voluntary monthly contributions to my pension account in 1975, when the pension plan was modernized to allow such contributions were. I began receiving pension benefits from this “second bucket” when I retired in 2010.

In 2010, I rolled some of the pension

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