When I was younger, I loved playing SimCity. I imagined what it would be like to build my own city and all the things I would do with my city. From time to time, I would draw out my city designs on paper and try to construct my different designs in SimCity.
As you may know by now, my wife and I have been building our dividend portfolio, with the goal that one day our portfolio can generate passive income that exceeds our expenses. When I view our dividend portfolio, I like to imagine that I am building a virtual dividend city, just like when I was playing SimCity.
When building this virtual dividend city, I ask myself one question and one question only.
What do I need in my dividend city?
Building my dividend city
Imagine I have already built a house with nothing else around it for miles around. First, how do I make sure I can live comfortably in my house? Second, how do I establish a city?
Well, I need gas and electricity to live comfortably in my house. This leads me to invest in dividend stocks like Fortis, Emera, and Hydro One.
Being warm in the house and having electricity is great, but I need food and other basic items. This leads me to invest in dividend stocks like Walmart, Target, Metro, Costco, Saputo, General Mills, and Procter & Gamble.
Although we are practicing frugality and reducing our consumption to save the environment, we will still produce garbage. We can’t just leave garbage in our own house or dump it in the empty land next door. We need someone to collect and dispose all the garbage properly. This leads me to invest in a dividend stock like Waste Management.
Now that I have taken care most of our needs in the house, I need to start looking outside of our house.
To build a dividend “city”, we need more than just one house. This means having a community that people can live in, with roads, stores, banks, schools, hospitals, and other important services. This leads to me investing in dividend stocks like Johnson & Johnson, RioCan, H&R REIT, Royal Bank, TD, Omega Healthcare, and AbbView.
Although the city is now set up, I need to look after people in my city. People need jobs and my dividend city needs to be able to import and export goods and services. People also need to go from my dividend city to other cities. Therefore, this leads me to invest in dividend stocks like Enbridge, Canadian National Railway, Suncor, WestJet, Domtar Corp, Magna International, Intel, Apple, Qualcomm, and Exco Technologies.
Last but not least, people in my dividend city need to be able to communicate with each other and get information. With this in mind, this leads me to invest in dividend stocks like Telus, BCE, AT&T, and Rogers.
Can I more things/dividend stocks to my city? Of course, but adding more things/dividend stocks may not necessarily lead to a better city. As the “mayor” of the city, I need to determine the right amount for my own city.
Therefore, my dividend city will look different than yours. Each dividend city is unique in its own way.
Keeping it simple
Although each dividend city is unique in each own way, building a dividend city doesn’t need to be a complicated process.
All you have to do is…
Keep it simple!!!
It comes down to determine products that you need and use on a daily basis and buy companies that produce these products. There is no need to write up an elaborated buying thesis, or rationalize why you should pick company A over company B. If you use a product every day, find yourself dependent on it, and find it extremely difficult to switch to another brand, chances are, you are not the only one that feels this way. And given the choice, why not own both company A and B to capture all the opportunities?
For example, how many people do you know actually switch banks regularly? If you have been using Royal Bank, there is a very high chance you will stick with Royal Bank for the foreseeable future. Similarly, if you are using Telus as your cellphone provider, there is a high chance you will stick around with Telus. Even if you find an appealing deal at Rogers, chances are Telus will be able to offer similar deals to retain you as a customer if you speak to someone at Telus’ customer loyalty department.
However, owning Royal Bank does not exclude you from owning other banks like TD, Bank of Nova Scotia, Bank of Montreal, or National Bank. Similarly, owning Telus does not exlude you from owning other telecommunication companies like Rogers and BCE.
Building a dividend city, or rather, a dividend portfolio, can be a straight forward process if you imagine that you are building a dividend city.
Dear readers, what does your dividend city look like?