Problem: Much of classic portfolio management relies on creating a portfolio that will grow in value due to its underlying shares. However, many managers are beginning to see success for portfolios managed through dividend management. Is there a way to leverage this for a new business model with a broader audience? As described by Brian Bollinger, founder of Simply Safe Dividends
A big appeal of dividends is really that it’s kind of psychologically easier to stay the course. You are focusing on building this growing income stream regardless of market conditions.
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Solution: This business would create an automated trading platform that manages customer’s money through focusing purely on dividends. As described by Barron, the strategy tends to return between 2% - 5% per year. As described by Barron’s,
“People generally say that the sweet spot is somewhere between 2.5% and 4.5%” for dividend yields, “and I’m right in the middle of that at 3.6%,” says Dave Van Knapp, an active dividend-growth-investing blogger and investor who relies heavily on dividends in retirement.
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Consider, for example, a retiree whose portfolio totals $200,000. A 3% yield on that would produce $6,000 a year—not very much, though it could be supplemented by Social Security or other income, if available.
A $1.5 million portfolio, at a 3% yield, would generate annual income of $45,000, which, if combined with other sources like Social Security, could be sufficient.
The goal of this business would be to target individuals with a portfolio of $1m+ and create and manage a dividend portfolio for them at a small fee through an automated trading platform that finds and exploits the highest returns for receiving dividends.
But what are 10 stocks that you could invest in to start creating this sort of dividend portfolio? Barron’s provides a great example of 10 to start with.
These yields, however, are constantly changing every year. Just as Vanguards index funds automatically rebalance, this business would create dividend portfolios that do the same: automatically rebalancing to optimize the highest return. This is especially important since every quarter companies readjust their dividends and the payouts that they make to consumers.
As described by Allied Market Research,
The global robo advisory market size was valued at $4.51 billion in 2019, and is projected to reach $41.07 billion by 2027, growing at a CAGR of 31.8% from 2020 to 2027. Robo advisor is a software that helps investors to manage their funds, portfolios, and investments online with less human intervention. It collects all the relevant information such as investment timeline, risk tolerance, and returns with respect to their savings from clients through an online questionnaire.
This business would differentiate from other robo advisors like Wealthfront or Betterment by focusing purely on providing cash dividend returns.
Monetization: Fees for managing money through a platform like this.
Contributed by: Michael Bervell (Billion Dollar Startup Ideas)