2 investors who make thousands in passive income each month explain how to build a strong dividend portfolio

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  • Lisa Osada and Ben Offenberger are financial bloggers and investors with six-figure portfolios.
  • They both earned thousands in dividends alone last month.
  • They spoke with Insider about how they analyze companies and which stocks are in their portfolios.

This is an edited, translated version of an article that originally appeared on June 6, 2022.

Dividends are a simple way for investors to generate passive income. Two German financial bloggers and investors, Lisa Osada, who runs Aktiengram (Sharesgram), and Ben Offenberger, who runs Beamteninvestor (Executiveinvestor), focus on dividend stocks.

Both have built up six-figure portfolios. In May, Osada earned about 3,000 euros in dividends before tax, or about $3,200, while Offenberger earned just under 1,800 euros, or about $2,000. On average, Osada earns about 400 euros a month in dividends, and Offenberger about 1,300 euros. Insider verified these amounts with documentation.

Insider spoke with the investors about how they built up their dividend portfolios and their advice for others who want to do the same.

“My most important tip sounds illogical at first, but it’s immensely important: When building your dividend portfolio, don’t pay attention to the dividend,” Offenberger, 38, said, adding, “It should always be about the companies themselves.”

He said investors needed to ask themselves: What’s the business model like? Is the company able to steadily increase its profits? And does it have a so-called economic moat, a term made famous by Warren Buffett — meaning does the company have an advantage over its competitors that it can maintain and establish its market share?

“After all of that, you can then start to look at the dividend,” Offenberger said.

Osada said the quality of the company is “always” the most decisive factor. Before investing, she said, she looks closely at how the company makes money and tries to get an idea of how it will develop.

Both investors said they carry out this analysis on a company before they look at the dividend ratios.

Osada and Offenberger said they pay attention to the average historical dividend yield and whether the dividends are paid through profit or through cash flow.

“I make sure that the ratio is not above 75% on average, but also not below 25%,” Osada said, adding that if all the company’s profits are paid out as dividends and nothing can be reinvested, that’s not a good sign.

She also cited dividend continuity, or how many years in a row the dividend has been paid reliably and hasn’t been reduced.

They both said they also look at the average dividend growth rate, the percentage by which a dividend goes up each year.

Offenberger received dividends from nearly 20 companies in May. He focuses primarily on American stocks; AT&T, Mastercard, British American Tobacco, Hercules Capital, and Omega Healthcare Investors are all in his portfolio.

In May, Osada received dividends from companies including the German chemical companies BASF and Symrise, the energy company RWE, the insurance firm Munich Re, Apple, The Cheesecake Factory, BMW, and Mercedes-Benz.

Mercedes-Benz paid her the most dividends, at just over 1,777 euros, while BMW paid her 348 euros.

“It’s important to mention that I built up the Mercedes position over many years,” Osada said. She first purchased shares in the company in April 2013, investing around 800 euros, and has kept adding to her position.

“Most recently in the COVID-19 crash, I bought a large amount when the price was around 25 euros,” she said.

Offenberger said it’s crucial to diversify your portfolio, adding that “this involves covering different sectors as well as mixing dividend-growth stocks and companies with higher dividend yields.”

Osada agreed, saying you should avoid investing all your capital in only a few stocks or in one industry or focusing on just one dividend metric in a stock.

“The classic is to buy a stock just because it has a high dividend yield,” Offenberger said. But often it has a high dividend yield because the share price has just fallen sharply, he added. “This is where you can get a rude awakening if the dividend payment has to be reduced or stopped completely.”

Osada added that “there are no guarantees with dividends.”

But Offenberger acknowledged that some companies with high dividend yields can be worth it, citing real-estate investment trusts, or REITs, as an example. REITs own and manage real estate, collect rent, and then pay out the income as dividends; they’re legally obliged to pay out at least 90% of their annual taxable income as dividends.

“Looking at profits is also the wrong metric here,” Offenberger said, adding that real-estate companies have high depreciation, so profit is “not very meaningful.”

He said you need to look at other figures, like funds from operations, which real-estate analysts use to determine the profitability of a company.

As an alternative to stocks, Osada recommended ETFs. She said there are broad-based ETFs that cover companies around the world and have a focus on quality dividend stocks.

She added that while ETFs mean less effort for you as an investor, as they’re passively managed, you can still benefit from the profit shares.