Here is part 2 on how to creating a successful retirement portfolio. Based on our US retirement portfolio, we will provide more insights into building a European retirement portfolio. In the coming weeks, you can follow along the selection of some solid “retirement dividend stocks”. In part 2, we will add two new dividend stocks.
As a recap, here are the three European dividend stocks we started our retirement portfolio with:
Here is the full article of part 1.
Let’s start with our main objectives.
The two main objectives of our new Retirement Dividend Portfolio is to preserve capital and deliver a safe dividend yield above the market’s average. Dividend growth is expected to be moderately, and the portfolio should keep up with the broader market over time. So, the composition of this conservative portfolio for retirees will be constructed based on the following principles:
- Diversification in several sectors and minimum exposure to 20 stocks
- Average dividend yield 2.5% – 4.0%
- Average Dividend growth rate 4%+
- Average loss ratio 1.8-2.5 (see defensive aristocrats)
Holdings are rarely sold and managed with a “buy-and-hold investor” mind-set. The aim is to buy and hold positions for at least 3-5 years. If the fundamentals of the company structurally change or stock valuation reaches excessive levels, a holding could be sold. The portfolio is expected to underperform in bull markets and outperform in bear markets due to its defensive nature.
In the end, we created the Retirement Dividend Portfolio, so customers can follow a selection of “conservative” dividend stocks. Some investors could mirror the portfolio holding for holding, but others use the list to generate investment ideas and make sense of trends and risk/returns in their own portfolios.
If you decide to mirror the portfolio (once completed), our recommendation would be to invest equally across all holdings. This provides diversification between stocks, sectors. Preferably the value of one individual stock is always below 5%-8%. Some holdings may appear undervalued and some overvalued, so we provide some guidelines/rules on when to buy or not to buy.
Retirees are often looking for a stable income stream, stocks with an excellent yield, and a good track record of dividend payments. Those elements are also the foundation of our retirement portfolio. Diversification is a good approach to reduce risk. This can be achieved by selecting a minimum of 20 stocks and from different sectors. Since this retirement portfolio is solid based on stocks, please ‘don’t put all your eggs in one basket‘ and invest in other asset classes as well, e.g. bonds or real-estate.
Let’s look at two European dividend stocks new additions to our retirement portfolio:
Both companies are not high-yielders, but we also look for some diversification in our retirement portfolio, Cosmetics, and Technology. Both do have a great total return track record and showed an above-average dividend growth figure over the last 5 years.
L’Oreal
| Dividend Yield | 1.21% | Sector | Consumer Defensive |
| Years Dividend Growth |
1 | Payout Ratio | 60% |
| 5 Yr Avg Dividend Growth | 7.35% | ISIN | FR0000120321 |
L’Oréal, the French cosmetics giant, is worldwide known for its cosmetic products and the “Because I’m Worth It” marketing campaign running since 1973. It is the world’s largest cosmetics company and by investors often perceived as an expensive share. In 2020, the company kept its dividend per share on the same level as 2019. This meant that the impressive streak of 26 consecutive dividend increases was lost. However, L’Oréal proposed to raise its dividend per share to €4.00 from €3.85 in 2021. This is almost a 4% increase.
Overall L’Oréal is a stable company with good sales growth figures and active in a growing market, especially in China and digital.
ASML Holding
| Dividend Yield | 0.63% | Sector | Technology |
| Years Dividend Growth |
10 | Payout Ratio | 36% |
| 5 Yr Avg Dividend Growth | 29.6% | ISIN | NL0011794037 |
ASML Holding is a Dutch company and a crucial player in the global semiconductor market. ASML develops and produces semiconductor manufacturing equipment, specifically machines for the production of chips through lithography.
Last year, the stock price already rose by 88%. End of January 2021, the company reported better than expected revenue in the first quarter of €3.9 billion ($4.7 billion) to €4.1 billion, with a gross margin of as much as 51%, analysts expected a sales figure of €3.52 billion.
ASML has been able to increase dividend payouts for 10 consecutive years now. As of 2019, ASML commits to semi-annual dividend payments (April and November).
Retirees are often not only looking for a stable income stream from their portfolio but also a cash flow per month. Here is an overview of the default months when the three companies will go ex-dividend.
- Ahold Delhaize paid a final dividend of €0.47 in April and an interim dividend of €0.50 in August.
- Roche paid 9.00 CHF in March 2020.
- Sanofi paid €3.15 in May 2020
- L’Oréal paid €3.85 in April 2020.
- ASML paid €1.35 in April and €1.2 dividend in November 2020
Other Sources of Dividend Investment Ideas
There are several lists to quickly screen for businesses that regularly pay rising dividends.
- The Dividend Aristocrats Index is based on 64 companies part of the S&P 500 and with 25+ years of consecutive dividend increases.
- The Dividend Kings List is even more exclusive than the Dividend Aristocrats. It is comprised of less than 20 businesses with 50+ years of consecutive dividend increases.
- The MoneyInvestExpert Defensive Aristocrats is a performance-based top-10 selection of the Dividend Aristocrats to outperform the market in the long-term.
- Portfolio lists like the Berkshire Hathaway Portfolio or Bill Gates’stock portfolio can be a source.
- For the European focused investors, there is also the list of European Dividend Aristocrats.
- Dividend Champions are not necessarily members of the S&P 500 index, have increased their dividend for 25 or more consecutive years.
- 100+ years of dividend, the list of stocks that pay over 100 years of dividend can be a list of inspiration.
- Blue Chips stocks from the US or the European ones.
Next to selecting the right dividend stocks, important principles for successful long-term investing are Disciple, Diversification, Defensive & indeed Dividend. Read more about this in our free e-book.
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