How I'd build a dividend portfolio from scratch today—lessons from doing it wrong the first time

When I started dividend investing in 2016, I chased yield like a dog chasing cars. My first portfolio had an average yield of 7.2% and I thought I was a genius. Within 18 months, two of those high-yielders had cut their dividends and one went bankrupt. Turns out there's a reason those yields were so high—the market was pricing in the risk I couldn't see.

Here's the framework I'd use if I were starting over with, say, £20,000 to deploy:

Start with the dividend aristocrats, but don't stop there.

Companies that have raised dividends for 25+ consecutive years (aristocrats) or 50+ years (kings) have proven they can maintain payouts through multiple recessions. They're not exciting, but they're a foundation. Think Procter & Gamble, Johnson & Johnson, Coca-Cola.

But don't just buy the whole aristocrat list. Some of them are aristocrats through financial engineering rather than genuine business strength—they've maintained increases by shrinking the payout ratio to unsustainable levels or taking on debt. Always check if the dividend is actually covered by free cash flow, not just earnings.

Build across sectors deliberately.

My early portfolio was accidentally 60% energy and financials because that's where the yields were. When oil crashed and banks got squeezed, my income dropped 30% in a quarter.

Now I aim for something like: 20% consumer staples, 15% healthcare, 15% utilities, 15% industrials, 10% financials, 10% technology, 10% REITs, 5% energy. Not perfect, but diversified enough that no single sector can devastate my income.

Understand the yield/growth trade-off.

A 2% yielder growing dividends at 10% annually will out-earn a 5% yielder growing at 2% within about 12 years. And it'll likely have better capital appreciation. I used to dismiss low yielders, but companies like Microsoft and Apple have become meaningful dividend payers for people who bought them a decade ago.

The sweet spot for me is 2.5-4.5% yield with 5-8% annual dividend growth. High enough to generate real income, growth fast enough to outpace inflation.

Don't deploy all at once.

I'd spread that £20,000 over 6-12 months, buying during red days when possible. Dividend stocks still have volatility, and buying in tranches reduces the risk of putting everything in at a local top.

Reinvest until you need the income.

DRIP (dividend reinvestment) is boring and feels like you're not getting anything. But compounding is the actual magic of dividend investing. I didn't touch my dividends for the first five years, and that reinvestment accounts for about 30% of my current portfolio value.

What would you add to this framework? And for those further along—what do you wish you'd known when starting out?