Adrian Vidal/iStock via Getty Images

Adrian Vidal/iStock via Getty Images

It's officially the start of year 2 for the Dividend Harvesting portfolio on Seeking Alpha. I am classifying the first year as a success as I established a broad portfolio with vast diversification that finished in the black while yielding over 6%. I have been thinking about what my goals for year 2 are, and this is what I have come up with:

This has been a difficult market to invest in. The markets continue to sell off, uncertainty in the markets is creating large amounts of volatility, Inflation is still high, we have no idea what the Fed is going to do regarding rising rates, and the geopolitical landscape is horrific. The SPDR S&P 500 Trust ETF (SPY) has declined by -9.01%, and the Invesco QQQ ETF (QQQ) has declined by -15.22% YTD. Through thick and thin, the Dividend Harvesting portfolio has now finished 52/53 (98.11%) weeks in the black. Nobody has a crystal ball, and the external economic and political factors that continue to impact the market are still a concern. The markets may not have bottomed, and it can always get worse. My dividend approach may be boring or not appealing to some investors, but it continues to hold up. This style isn't about capital appreciation rather the preservation of capital and generating income. Each week I continue to add $100 and invest in income-producing investments. Currently, I have allocated $5,300 to the Dividend Harvesting portfolio; it's in the black by $200.42 (3.64%) and generating $372.74 in annual dividends, which is a forward yield of 6.78%.

This series has never been about hitting a target yield, generating a certain amount of profit, or beating the market. I had two specific goals with this series. The first was to create a blueprint for constructing a dividend portfolio by documenting the journey starting from the beginning. The second goal was to illustrate how allocating capital each week toward investing regardless of the amount would be beneficial in the long run. Too many people are under the illusion that you need tens of thousands or even hundreds of thousands to benefit from investing. Instead of using my real dividend portfolio as an example, I decided to start a new account, fund it with $100, and add $100 weekly, providing a step-by-step guide to dividend investing. This methodology doesn't have to be used for dividend investing, and it could be as simple as an S&P index fund or a Total Market fund. Hopefully, this series is inspiring people to invest in their future to attain financial freedom.

This graph keeps growing, and the snowball effect is still in its infancy. This is one of my favorite graphs as it shows the trajectory of the annual dividend income this portfolio is projected to produce. By making weekly investments in income-producing investments and reinvesting the dividend income, the annual income continues to grow at a rapid pace. Originally, the first week's allocation of $100 allowed me to generate $7.44 in annual dividend income. Since the start of week 2, I have added 59 positions which have grown my annual dividend income by $365.30 (4,910%). By making these investments, I have created my own source of additional cash flow, which is the real premise of this portfolio.

Here's how much dividend income is generated per investment basket

So far, in 2022, I have collected $66.30 from 86 individual dividends. Each investment I make has a specific purpose and helps build out future cash flow. This style of investing isn't for everyone, but if you're looking to generate consistent cash flow while mitigating downside risk, this method has worked for me. I am hoping to collect between $450 - $500 in dividends in 2022, which will be reinvested, and finish the year generating >$700 in annual dividends.

I didn't add new positions in week 53, so my annual dividend count has remained stagnant from week 50 at 472 annual dividends. As I add new positions, I'm fairly certain my secondary goal of generating weekly income will be achieved sometime throughout year 2.

The goal of generating enough income from the dividends to purchase an additional share per year has been the never-ending project of this portfolio. We finally have our first position that is now generating an additional share from its dividends, and it's the Global X Nasdaq 100 Covered Call ETF (QYLD). As more companies move to the next column, slow and steady progress is being made. Eventually, more positions will generate one share per year in dividend income.

ETFs remain the largest segment of the Dividend Harvesting portfolio. Individual equities make up 51.88% of the portfolio and generate 36.26% of the dividend income, while ETFs, CEFs, REITs, BDCs, and ETNs represent 48.22% of the portfolio and generate 63.74% of the dividend income. I have a 20% maximum sector weight, so when a singular sector gets close to that level, I make sure capital is allocated away from that area to balance things out. In 2022, I will make an effort to even out these portfolio percentages. As more capital is deployed, the bottom half of the portfolio weighting will increase.

AT&T (T) is no longer my top position as Exxon Mobil (XOM) has taken the top spot. I am going to do my best to make sure that no positions exceed 5% of the portfolio going forward. Overallocation is dangerous, and by doing this, I'm capping my risk. If one of my investments goes under, the most I can lose is 5% of my capital.

Week 53 was another week of averaging down on positions I was in the red with. I added a share to each of the following holdings:

My only exposure to Preferred stocks is through PFFD and the Virtus InfraCap U.S. Preferred Stock ETF (PFFA). I made a decision not to invest directly into preferred shares because it's too much to keep track of. PFFD invests in a broad basket of preferred stock in the U.S and throws off monthly distributions.

STWD is one of my favorite REITs, and I have been a shareholder for years. I think Barry Sternlicht is one of the best CEOs in the space. If you have the time, check out this interview at the Knowledge at Wharton Real Estate Forum or a more recent one where A-Rod and Big Cat from The Corp. interview him. STWD's core business focuses on originating, acquiring, financing, and managing commercial mortgage loans and other commercial real estate debt investments. STWD has paid a solid dividend of $1.92 per share since I have been a shareholder, and regardless if the share price goes up or down, I continue to build my position by reinvesting the dividends.

I invested in MFC the prior week, and it started to slide, so I added to the position. MFC is one of the largest insurance companies in Canada; it has a market cap of $38.24 billion, and its yield has been pushed up to 5.25%. The dividend growth is great as they have provided 8 years of increases at a 5-year growth rate of 10.9%. Nothing changed fundamentally, so I am adding.

PTY and THW are two closed-end funds that haven't been doing well lately. PTY is getting to the point where I am going to conduct a gut-check before I keep adding. PTY is one of PIMCO's largest funds and an established CEF that has performed well over several difficult environments. There was a recent distribution cut, and the fund has continued to fall. I am going to get back to everyone on this one. At one point, THW was one of my better performing CEFs, then it started declining in November 2021 and never looked back. I am nowhere near as worried about THW as I am about PTY as I think there is relative strength in its sector and portfolio

This is why diversification is critical to any portfolio. Several investments are down 10-15% prior to accounting for dividends. By diversifying across 62 positions, my risk is spread out, and even if a few positions decline or one happens to get pummeled, there will be others such as XOM that pick up the slack.

There are a lot of things I want to add. I have been considering adding to Intel Corp. (INTC) and Verizon (VZ). I may also hold some capital back and maybe add a share of 3M (MMM) in week 55. We will see what occurs, but I will continue to buy throughout volatility.

Thank you to everyone who continues to read this series. Creating a passive income fund isn't an investment approach that everyone believes in, but it's one of my investment cornerstones. I have a comprehensive investment approach where I invest in growth companies, value companies, and dividend companies/funds. I also utilize an indexing approach with funds for my retirement accounts. Income generation is just one aspect that I focus on when planning for the future. The passive income I'm generating will act as additional income in retirement. I look at this as a Barbell approach because I utilize several aspects of investing in my overall approach.

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This article was written by

I am focused on growth and dividend income. My personal strategy revolves around setting myself up for an easy retirement by creating a portfolio which focuses on compounding dividend income and growth. Dividends are an intricate part of my strategy as I have structured my portfolio to have monthly dividend income which grows through dividend reinvestment and yearly increases. Feel free to reach out to me on Seeking Alpha or https://dividendincomestreams.substack.com/

Disclosure: I/we have a beneficial long position in the shares of XOM, INTC, VZ, T, PTY, STWD, MFC, THW, PFFD either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am long every position in the Dividend Harvesting portfolio. Disclaimer: I am not an investment advisor or professional. This article is my own personal opinion and is not meant to be a recommendation of the purchase or sale of stock. Investors should conduct their own research before investing to see if the companies discussed in this article fit into their portfolio parameters.