From Dividend Stocks to ETFs – Why I Changed My Strategy

I started investing in dividend-paying blue chip stocks in 1995 when my uncle gave me a share of Chevron stock.

He told me that if I keep buying more shares and reinvesting the dividends into additional shares, I’d eventually have a lot of shares paying me a lot of money.

With some imagination and an elaborate spreadsheet, I could foresee earning enough to live off the dividends someday, if I added enough money and stuck to the strategy.

I largely followed his Chevron DRIP advice for the next decade, but added more stocks to my portfolio to diversify, and reinvested dividends into new holdings instead of the individual stocks.

The dividend growth strategy became the basis for launching this blog in 2013.

I continued adding more shares and holdings to my income portfolio for another eight years.

Meanwhile, I was also maxing out my employer’s pre-tax retirement accounts into index mutual funds. These accounts have become the foundation for my eventual retirement.

My take-home salary paid for expenses, and whatever was left over went into college savings, IRAs, and a taxable brokerage account.

Today, my dividend stock workhorse portfolio holds 49 stocks and pays about $15k in annual dividends.

But the number of holdings is down from about 60 two years ago.

That’s because by the time I hit age 60 (in nine years), I’m aiming to reduce this portfolio to closer to 25 stocks and a handful of ETFs to make it easier to manage.

Of the remaining 49 stocks, 32 are up more than 100% from my cost basis, not because I’m a great stock picker, but because I’m just holding blue-chip companies with enduring businesses.

I’ve sold most of the losers.

When I sell a holding, the proceeds go into ETFs, usually SCHD, VIG, or VYM (if not VTI for total return).

These ETFs accomplish the same investment objective — reliable and growing dividend income — but do so with much less effort.

Around the time of the COVID-19 pandemic, I started considering leaving my full-time job to become a full-time online creator.

As my side business took up more and more of my time, dividend stock research became less of a priority.

Since dividend stock research wasn’t necessary to achieve my portfolio investment objectives, I let it go.

Now I monitor the portfolio, but I don’t do deep research.

Instead, I can focus on my business, which, ironically, involves deep research into private companies instead of public ones.

For my taxable stock portfolio, I look for ways to simplify it without causing tax headaches. Yet, I appreciate having the supplemental dividend income, and I’m careful not to purge the cash cows.

Simplifying this portfolio is part of a larger estate planning strategy. I don’t want to leave a sloppy mess for my family if something unexpected happens to me.

Mrs. RBD doesn’t enjoy managing money as I do.

But if the responsibility were to fall on her someday, I want to ensure it’s uncomplicated.

So fewer financial accounts, and fewer holdings in those accounts.

I’m far from an ideal portfolio today, but it’s my north star.

I don’t regret building my dividend stock portfolio, as it’s been a source of income and wealth building.

But if I were starting new today, I’d focus more on total returns using total market index funds, and supplement with dividend-focused ETFs instead of individual stocks, because it’s easier.

Simplifying your financial situation is a key portion of my RBD mini-course, a 4-video course about optimizing your DIY retirement. Start the course here.

Craig Stephens

Craig is a former IT professional who left his 19-year career to be a full-time finance writer. A DIY investor since 1995, he started Retire Before Dad in 2013 as a creative outlet to share his investment portfolios. Craig studied Finance at Michigan State University and lives in Northern Virginia with his wife and three children. Read more.