Adding international dividends to your passive income portfolio

We have discussed passive income portfolios many times in the past few months and dividend investing is certainly a major part of what we consider to be a great way to add passive income. Every month, we take a look at the top dividend stocks from the S&P500 and then do a further analysis in our free newsletter. We even tend to do some deeper analysis into a few of the promising names both on this blog and in the newsletter.

We have also discussed the benefits of adding international exposure to investment portfolios and the various ways of doing that. One interesting idea is to add US listed stocks that pay foreign dividends. Why?

-Greater diversification in the actual payout: Companies that pay a foreign dividend generally have an important part of their business outside of the United States and because of that they will generally help you get a better risk/return for your portfolio

-No conversion complications: In almost all cases, if you own a US listed stock in an account in $USD, the divideend will automatically be convered to $USD in your account even if it is paid in a foreign country.

-While the $USD is not doomed, it is fairly easy to make the case that there are many things to worry about (debt, emergence of China, high unemployment, etc) and having a cash flow in another currency might help increase your yield over time if the dollar continues to have a difficult time

-By buying US listed stocks, you avoid all of the tax implications of owning foreign stocks that would require withholding taxes, etc.

-Your broker will be taking a slight cut on the conversion of your dividend as usually happens for all conversions

-International companies sometimes have a less reliable dividend payout. Why? Because while companies in North America generally put a high value on paying a consistent dividend, many international companies try to pay oput as much as possible, making some years biggers and some others less so. Obviously, the dividend growth is not as consistent for these companies but it can still amount to superior growth overall and you could argue that a company that has such a pattern will have bigger incentives to perform than a company that pays a third or half of what it could.

Overall, I think it’s a winning proposition to add some quality foreign companies that are listed in the US, ideally that pay a dividend in a foreign currency. Over the next few days I will take some time to look at a few options, hopefully we’ll find some interesting ones.

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Adding international dividends to your passive income portfolio

We have discussed passive income portfolios many times in the past few months and dividend investing is certainly a major part of what we consider to be a great way to add passive income. Every month, we take a look at the top dividend stocks from the S&P500 and then do a further analysis in our free newsletter. We even tend to do some deeper analysis into a few of the promising names both on this blog and in the newsletter.

We have also discussed the benefits of adding international exposure to investment portfolios and the various ways of doing that. One interesting idea is to add US listed stocks that pay foreign dividends. Why?

-Greater diversification in the actual payout: Companies that pay a foreign dividend generally have an important part of their business outside of the United States and because of that they will generally help you get a better risk/return for your portfolio

-No conversion complications: In almost all cases, if you own a US listed stock in an account in $USD, the divideend will automatically be convered to $USD in your account even if it is paid in a foreign country.

-While the $USD is not doomed, it is fairly easy to make the case that there are many things to worry about (debt, emergence of China, high unemployment, etc) and having a cash flow in another currency might help increase your yield over time if the dollar continues to have a difficult time

-By buying US listed stocks, you avoid all of the tax implications of owning foreign stocks that would require withholding taxes, etc.

-Your broker will be taking a slight cut on the conversion of your dividend as usually happens for all conversions

-International companies sometimes have a less reliable dividend payout. Why? Because while companies in North America generally put a high value on paying a consistent dividend, many international companies try to pay oput as much as possible, making some years biggers and some others less so. Obviously, the dividend growth is not as consistent for these companies but it can still amount to superior growth overall and you could argue that a company that has such a pattern will have bigger incentives to perform than a company that pays a third or half of what it could.

Overall, I think it’s a winning proposition to add some quality foreign companies that are listed in the US, ideally that pay a dividend in a foreign currency. Over the next few days I will take some time to look at a few options, hopefully we’ll find some interesting ones.

If you liked this post, you can consider subscribing to our free newsletters here

View the original article here

What will you do when your portfolio will drop by 30-40%?

Panic! It is usually what happens when markets crash, no matter if we are talking about real estate or the stock markets. Like all of you, I work hard to save money, trying to build myself a nice and solid passive income portfolio  in order to profit from life at its fullest. But until you only own government bonds (and even then), you are vulnerable to a major crash. They have happened several times over the years and one of the reasons why crashes do actually occur is because of the panic that is created by the rapid and what seems like a non-ending decrease in value.

Roller coaster rides are fun, they create adrenaline, stress and emotion like few things can do in life. The stress is limited however because you usually:

-Can see what is ahead of you
-Know that the outcome will be fine

First off, when markets start falling off a cliff, it becomes easy to panic, as newspapers and others start discussing “end of the world scenarios”. Not only do we not know what’s ahead but it can become very emotional when you start thinking about the years that you spend building up your portfolio in order to live an enjoyable retirement.

No matter how many people will tell you how to react in the next crisis, it is so emotional for many that they can act very irrationally. That is why I think today is the perfect time to think about how you will react when this will happen to you. I did say WHEN and not IF. No matter how much you’d like to escape this reality, the truth is that the market crashes every few years and you will be a victim at some point.

Since the stock markets have existed, every market crash has been followed by a recovery. Some take weeks, others years but other than perhaps the incredible decline of the Japanese Nikkei, which is an entirely different scenario as the whole Japanese economy fell off a cliff, others have recovered fine. Unfortunately, when investors, especially ordinary ones such such as you and I, lose 20%-30% or even more of our portfolio value, it becomes easy to panic and do things that we will regret. I know some who have done it. After losing 20-30% of their portfolio’s value, they decided to sell everything else in order to avoid a disaster. Of course, when the markets recovered, they did not own the assets and while every other investor started breathing much better, these investors felt like they had just been ran over. They had “suffered” the entire market collapse without enjoying the rebound.

-If you cannot afford or live with losing 30-40% of your portfolio, DO NOT invest all of it in the market

I know that I will keep my assets, and even continue putting money, in the same way. But I know that we are all different and I would love to hear your thoughts on this.

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How many dividend stocks to own in your passive income portfolio?

It’s a common question and there is no way to answer it perfectly. Why? Because you could probably bring 10 different “experts” and they would all come up with different answers. There is no perfect answer but it’s a question that I get so often that I thought it’d be interesting to at least give my point of view. Let’s start with the basics.

-Having less stocks also means less trading fees
-The more companies you have in your portfolio, the more difficult it becomes to track them

-To smooth the passive income (adding companies makes dividend changes for one company less visible)
-To not depend on a specific sector or company too much (imagine having only a few financial companies during the most recent credit crunch)

So what does it become? It’s basically a balancing act where each person would have a different “middle point”. The number of stocks would generally depend on:

-Your ability to tolerate volatility
-The size of your passive income portfolio (for example, I have written about starting a dividend portfolio with $5000… do not spread such an amount over 10-15 stocks).
-The amount of time you want to spend researching these stocks
-The turnover you wish to have (are you a buy & hold or do you rotate often?)

It’s not necessarily set in stone, but here are my basic guidelines depending on the size of the portfolio:

Portfolio Size#Dividend stocks

As you can see, the number of stocks, at least for me, does not vary that much. Once I reach a passive income of $100,000 or so, I would generally keep the same number of stocks. Why? Because tracking and finding 25 winning dividend stocks is more than enough for me. It does give me comfort knowing that a 10% drop in any one of these stocks results in about a 0.4% loss for my portfolio which is very sustainable. I would from time to time change these 25 stocks obviously but trying to do too much reallocation can end up costing too much both in terms of trading costs but also the return. Why? Because chasing returns has always been shown as a losing strategy. You go with stocks that you believe in and that have strong fundamentals, not the stocks that have done the best in the past 12-24 months because those are very likely to not be the best performers in the next 12-24 months.

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