Dividend Portfolio Sector Allocation December 2015

Every few months I like to take a look at my portfolio holdings and examine my overall sector allocations to see if they meet my comfort level as to how my capital is distributed. Now that we are officially approaching the end of 2015 I think it’s as good a time as any to see how my stocks are allocated sector-wise, especially since I do not expect to make any more buys this month.

 

As we all know, market forces affect certain sectors at different times throughout business cycles which can often throw many portfolio balances out of sync. In the last year and a half or so we have witnessed the more than halving of crude oil prices as it knocked down all energy related companies and as a result it seemed every dividend income investor was buying an oil major, oil driller, oil services or pipeline company. With attractive valuations and higher yields being offered many dividend growth portfolios began to skew heavily towards energy related stocks. Too often I read among the other dividend blogs how heavily skewed their portfolio weights are towards energy, even though tempting values and yields persist.

 

2015 also saw the large Canadian banks get decimated as a variety of near term headwinds such as lower oil prices and a weaker Canadian dollar among other factors have dragged down Canadian dividend stalwarts The Toronto-Dominion Bank (TD), The Bank of Nova Scotia (BNS) and Royal Bank of Canada (RY). I am very much looking forward to seeing the calendar read 2016 as it will mean my ROTH account will be ‘open for business’ once again with a fresh $5,500 available for investment in those beaten down banks.

 

Of course, earlier this year we also saw the health REITs take it on the chin as Fed interest rate hike chatter dragged that whole sector down, though in recent weeks have bounced back quite nicely. Great opportunities for initiating or adding to HCP, Inc. (HCP), Welltower Inc. (HCN) and Ventas, Inc. (VTR), to name a few, could have been had as recent as early November.

 

Finally, other commodities priced lower have let the air out of many solid industrial names including Caterpillar Inc. (CAT), Emerson Electric Co. (EMR), Dover Corporation (DOV) and farm products behemoth Archer-Daniels-Midland Company (ADM). Now that I’m taking a step back and looking at 2015 in the rear view mirror I feel very satisfied that I have taken advantage of weaker pricing, better value and higher yield in all the names I mentioned above. We often talk about a stock market, but the reality is that we are dealing with a market of stocks. It’s all about recognizing where the current value and good yield rest when making our long term stock buys. Sure, the S&P and DOW may be at record highs from time to time, but there will always be a sector and a list of stocks that are severely depressed. It’s at those times, when the naysayers are shouting, “you’re crazy” for buying ‘X’ that are often the best times to add or initiate stocks into your portfolio. One of the best examples of this occurring within the last year was with a company that everyone was stating was dead. I’m talking about the home of the Big Mac, McDonald’s Corp. (MCD). About one year ago this stock was trading in the high $80s as ‘word on the street’ kept telling us that MCD ‘didn’t get it.’ It was an old guard company that was out of touch with the ‘enlightened’ millenials that only ate fresh and healthy at Chipotle Mexican Grill, Inc. (CMG) or Panera Bread Company (PNRA). What a difference a year makes! MCD has shown us over and over and over again that it is adaptable. You cannot exist for multiple decades and not adapt. If Ray Kroc were alive today he would not believe that his beloved MCD is selling salads, fruits, oatmeal, yogurt and other unheard of meal choices in the 1950s. My point, MCD is a dividend growth machine and just one short year ago, when no one wanted the stock, was a great opportunity to initiate or add shares at much better prices, value and yield. Today, MCD is at all time highs. This is why my Recent Stock Buy articles tend to only focus on the beaten down stocks in my portfolio which is why I added to my Canadian banks, health REITs, several industrial names and most recently my ADM this year.

 

In general, without seeking to achieve a specific percentage goal in mind per sector, I plan to make consumer staples my largest sector overall among my three portfolios as a whole. Industrial and health stocks should follow with finance next. I don’t plan to ever hold any tech names in my portfolio nor energy. If I ever pull the trigger on those sectors, it will constitute a small portion of my overall portfolio holdings. With that being said, let’s take a look at my most recent asset allocation for my dividend stocks.

 

Brokerage Account

SectorSector %Market Value
Consumer Staples28.69%$35,164.22
Industrial Products19.65%$24,085.63
Medical12.62%$15,473.55
Finance11.62%$14,243.00
Multi-Sector Conglomerates6.85%$8,398.07
Utilities6.81%$8,343.45
Retail/Wholesale5.69%$6,971.68
Basic Materials4.22%$5,170.14
Auto/Tires/Trucks (JCI)2.17%$2,657.48
Consumer Discretionary1.68%$2,065.23

 

ROTH Account

SectorSector %Market Value
Finance41.25%$15,414.33
Consumer Staples30.92%$11,555.90
Industrial Products14.93%$5,580.49
Retail/Wholesale6.70%$2,501.96
Multi-Sector Conglomerates3.77%$1,408.87
Medical2.43%$908.02

 

IRA Account

SectorSector %Market Value
Finance100.00%$13,693.95
Welltower Inc. (HCN)25.84%$3,539.02
HCP Inc. (HCP)19.58%$2,680.81
Ventas Inc. (VTR)17.37%$2,378.75
Care Capital Properties Inc. (CCP)1.55%$212.02

How are your stocks allocated? What is your largest sector holding(s) and how do you feel about having a relatively high overweight sector in your portfolio? Please let me know below.

 

Disclosure: Long TD, BNS, RY, HCP, HCN, VTR, CAT, EMR, DOV, ADM, MCD, JCI

30 thoughts on “Dividend Portfolio Sector Allocation December 2015

  1. Like you I don’t really set any target percentages for sector allocation but in general there’s a hierarchy of the sectors and how I’d like them to be represented. Consumer staples is at the top of that list and I really want to add more to that sector. Health care is either 2 or 3 with consumer discretionary being the other. Then it’s kind of a mix between financials, REITs, industrials, and energy. My energy allocation was way out of whack heading into the year and now after making some changes as well as the rout that the sector has undergone it’s back in line with what I feel comfortable with. Telco’s and utitlities will probably have a smaller allocation due to their lower growth.

    In regards to your question about being very overweight in a sector my answer is it depends. If it’s consumer staples then whatever I wouldn’t be worried at all. However, with some of the more cyclical sectors, energy and industrials, I’d feel less comfortable because so much is out of their hands. That’s why I limited adding to my energy holdings over the last year except for XOM. I do want to add some more industrial names though with DOV and ETN probably coming into the portfolio.
    JC recently posted…The Continued Sell-Off In Shares Of V.F. Corporation Is Juicing Expected ReturnsMy Profile

    • Hi JC,

      Like you, I would feel very comfortable being overweight in the consumer staples space. A stable sector like that seems to go through tough economic times much better than the cyclical industrial, energy or even financial sectors. Portfolio balancing is all about achieving a personal comfort level to risk and expected return from your stocks. Of course, this varies tremendously from person to person but for my taste, as you already know, I like to sleep well at night which is why I still do not own any energy names nor technology because of the inherent volatility in the sector. Sure, I may one day initiate a small position in energy but it will never constitute a significant percentage of my portfolio. As always, thank you for commenting.

    • Hi FJ,

      Though I’m not a Canadian investor, I can definitely understand your affinity for the large Canadian banks. While they are my largest sector holdings in my ROTH account, when looking at my total investments, the finance sector still ranks below my consumer staples and industrial names. Have a great holiday as well and thank you for commenting.

  2. Hello DivHut,
    Wow, that is a very nice and balanced portfolio. Looks very robust, well done.
    Our dividend stock portfolio is reasonably balanced, but does need further diversification to really be to our liking. Having said that, our dividend stock portfolio is only about 30% of our overall portfolio with assets (which include index funds, real estate and crowdfunding loans). So we think we are doing pretty good for now.
    Need to make an update on our portfolio breakdown on of these days, maybe a good thing to do 2015 has come to a close.
    Have a great holiday season.
    Team CF recently posted…2015 November Cheesy IndexMy Profile

    • Hi TCF,

      Thank you for your kind words regarding my portfolio balances. As I mentioned in another comment, there really is no perfect or ideal balance as finding the perfect diversification is a very personal matter. We each have different goals and are at different points in our lives and have varied risk tolerances. You seem to be very well diversified among different asset classes to which I’m not. Some might say I’m too concentrated in individual stocks but I am comfortable with that. Again, it’s a personal choice. It would be interesting to see how your stocks are allocated now that 2015 is coming to a close. It may give you some perspective of where to invest next going into 2016. Thank you for stopping by and commenting.

    • Hi FV,

      Looks like you probably own a lot of high yielding stocks in those categories. Nothing wrong with REITs, MLPs or BDCs, as I own several health REITs myself. I just think that many income oriented investors might chase unsustainable yield in those categories. Thank you for sharing your weightings.

  3. My watch list changes monthly, so the sector distribution of stocks also changes. Currently, I use that distribution as a target for my portfolio. Its a little simplistic, admittedly, and I’m looking for a “better” way to determine a target distribution.

    I have stocks in all 10 (soon to be 11) GICS sectors, including Information Technology and Energy. In fact, I’m somewhat overweight in Information Technology. MSFT, INTC and TXN are top performers. Energy has been a drag, of course…
    FerdiS recently posted…7 Dividend Increases, December 7 To December 18, 2015My Profile

    • Hi FerdiS,

      I always felt that there is no right or wrong way to diversify or allocate stocks. Simplistic or complex methods can both work. It’s a very personal choice that one has to make and your portfolio holdings are merely a reflection of your own investment goals and risk tolerance profile. Overweight in tech, that’s OK if you can sleep well at night. High allocation to energy… probably caused you some sleepless nights. For my long term investments I want to minimize my exposure to extremely volatile sectors, especially ones that are commodity based. As always, I appreciate your comment.

  4. I’m totally out of balance due to 3 mergers and 3 merger rumors hitting me. I guess I’ll do my review after the dust settles but I’m heavier into Consumer Dis. and Financials (US Regional banks).

    • Hi Charlie,

      I can understand when mergers or spin offs cause some unbalancing that was unplanned. In just a few years of investing, as a result of spin offs, I have seen ALLE, ABBV, MDLZ, HYH and CCP added to my portfolios. I’m expecting an EMR spin off in 2016. These new companies often throw a wrench in your balancing goals but that’s why it’s important from time to time to see where your money is allocated and decide if you are content with that diversification. Thank you for stopping by and commenting.

  5. Great idea. It is very smart to assess your allocations quarterly to see if you are overwieight in any one sector or lacking. I think your point about MCD is hilarious. It represents the beauty of what we do, fish out the undervalued long-term dividend stocks. Companies with the long history of appreciating and growing their dividend surely have survived short term issues, lack of growth periods, etc. during another era and showed that they are able to persevere. MCD is a great case for that and I also think PG from a few years ago will prove to be one as well. Over time these companies that have a proven long term track record will find ways to generate value to their shareholders.

    I love consumer staple stocks, so I am all for your strategy of making them your largest sector allocation. Best of luck improving your portfolio in 2016!

    Bert
    Dividend Diplomats recently posted…Bert’s 2016 GoalsMy Profile

    • Hi DD,

      I don’t go crazy over my sector allocations on a daily or monthly basis but I do think it’s important to review it at least a few times a year especially when several months go by and a lot of fresh capital has been added. I think if more DGI bloggers paid attention to their sector allocations they would not be sitting on heavy losses from their energy holdings. As I stated in the post, I have read time and time again about many of our fellow bloggers who are way overweight in energy. That didn’t have to happen.

      Glad you liked my MCD example. Isn’t it the truth though? Solid companies with a long history of dividend distributions let alone raises, gets hammered down into oblivion by the headlines and talking heads. All of a sudden, the company, for lack of a better word, ‘sucks.’ Remember JNJ just a couple years ago or so had the same issue with Tylenol recalls. They have been around since 1885 and all of a sudden, for lack of a better word was ‘crap.’ It’s over for JNJ, over for MCD, over for AFL (after the Japan tsunami), etc. You get the point. It’s a market of value stocks we seek and often when we hear the bad news we tend to shy away from those very names even though they have seen it all. World Wars, famine, terror, boom and bust economic cycles. You name it. Of course, just because a company has been around for a long time doesn’t mean it will continue to exist but odds are they can adapt especially if they are providing a good or service we all rely on. You know the drill. Buy when others are selling. Thank you for sharing your thoughts.

  6. Looks like you’ve got a nice allocation there, Keith. It’s good to be insulated against any downturns in a specific sector because bad things always happen in the short term. Good thing we keep to sectors that provide necessary products and services and that will always sell their products regardless of the political/economic climate. Food, heat, and toothpaste are things that we will all pay for if there was another Great Depression tomorrow. That’s why I’m not worried (“not worried” =/= “apathetic” or “not concerned”) about my portfolio being a bit overweight in energy. Because in a world that runs on oil and gas, I know that all those companies with global assets will come out of the oil slump strong and share their wealth with us shareholders.

    “It’s at those times, when the naysayers are shouting, “you’re crazy” for buying ‘X’ that are often the best times to add or initiate stocks into your portfolio.”

    Exactly. Which is why I bought a block of KMI at around $16.75/share. I can’t imagine that dividend not coming back within the next year or two. The company has shown me that it is committed to it (for better and for worse), and their slashing of the dividend shows me that they are willing to take the necessary steps to ensure the safety of the business. The bloody streets screamed “Buy!!!” at me.

    Sincerely,
    ARB–Angry Retail Banker
    ARB recently posted…Angry Retail Banker Is 1 Year Old!!!!!!My Profile

    • Hi ARB,

      Thank you for your kind words regarding my sector allocation. Of course, it didn’t happen by accident. I like to review my allocations every few months just to see where I stand and if I’m still comfortable with my holding amounts. As you stated, when you stick to sectors that provide necessary products or services, you insulate yourself from potentially buying into companies that may become irrelevant. Good times and bad, we all need our consumer staples and also as you stated, the world still does run on oil and will do so for the foreseeable future. Kudos for having the guts to jump on board with KMI at this point in time. I have already read quite a few blog posts from other dividend investors that have jumped ship. It seems like that dividend cut was too much to bear. With a beaten down stock and a potential to rise dramatically when oil rebounds, your guts may be handsomely rewarded in the future. You definitely are buying when others are selling. Thank you for sharing your recent action.

  7. “I don’t plan to ever hold any tech names in my portfolio nor energy”
    That’s really interesting approach. And of course when thinking about year 2015 and energy sector, many DGIs (me included) wish that they had your kind of portfolio. I have reduced my energy exposure strongly during this year, but definitely I should have done that before.

    It’s getting more and more clear to me that Healthcare and Consumers(I don’t actually specify staples and discretionary but wrap them in one package) are the sectors where I want to be overweight. Now my weight is about 14% in both and I feel like there is room to grow.
    Dividend Lord recently posted…3 Recent Buys – ABT, ADM, CSCO & 1 Sale – COPMy Profile

    • Hi DL,

      Sector allocation is all about feeling comfortable with your holdings which inevitably allows you to sleep well at night. Energy and tech are two sectors that are notoriously volatile. More so than the cyclical industrial sector or others. For my long term dividend growth, I am looking for dividend stability more than anything else. Ever since I became a long term dividend growth investor (2007) I wanted to avoid highly volatile stocks/sectors which included commodity based energy plays (oil) and tech which changes on a dime. Sure, I may be missing out on some great capital appreciation but I do like to sleep at night and my portfolio lets me do exactly that. I am more about increasing my annual dividend income rather than capital appreciation. I want to state that I’m not against energy per se. I have owned CHV (CVX), KMP (KMI), EPD, ETP and APU in the past. So I had my share of energy stakes but have sold those positions a long time ago. I may buy some energy names in the future but it will comprise a very small portion of my portfolio. For me, consumer staples and health seem to be the “safe bets” for the next two or three decades. Thank you for stopping by and commenting.

  8. Thanks for sharing DivHut. I don’t have target allocations for our current portfolio, but I am looking to sell down our Consumer Staples group. PG will be the first victim, because of poor execution …..current valuation….and questionable growth prospects. There are many powerful brands out there, but I question the ability of Procter and Gamble’s management to navigate the current headwinds when they have performed so marginally.

    Have a Merry Christmas buddy
    -Bryan
    Income Surfer recently posted…Proposed AllocationMy Profile

    • Hi IS,

      Like you, I also do not have a target allocation in mind for my portfolio, rather a general idea of which sector I’d like to be the largest and so on. It’s interesting that you are looking to ‘sell down’ your consumer staples. Though many DGI bloggers are heavy in energy, almost all state that they would like the consumer staples to be the largest sector in their portfolios. I happen to agree with that sentiment as it seems to provide the most stability and dividend predictability. I have to admit, you are one of the first, if not only, to potentially sell PG. I can understand why you have lost faith in the company going forward but I feel that they will be able to perform much better in an environment of a weakened U.S. dollar and more robust Asian and European economies. In other words, I’ll continue to hold my PG. As always, I appreciate your comment. Have a great holiday.

  9. I, too, don’t aim for any specific asset allocation but I’m more aiming for ones that are good value on my I’d-like-to-have-more-of list.

    At the moment I’m not very diversified because I’ve made so few investments, so hopefully in a year or 2 it’ll be more even. You make a great point about stocks/situations like Mcdonalds. Investors should remember that these companies will have leaders and analysts (probably smarter than us) who will be trying to think of a way of fixing the problem / getting better. We have to consider if a company can do something about it. People will always eat food, McD’s just needed to change / add to their menus. A resource company can’t do much to change the demand / price of their product, they just have to wait it out and survive. A business that sells out-dated products (eg blacksmiths or candlestick makers) will lose out, no matter what. Which category is the ‘beaten-down’ business in?

    Merry Christmas, Divhut.

    Tristan
    Tristan @ Dividendsdownunder recently posted…Christmas Wishlist 2015My Profile

    • Hi Tristan,

      Exactly! “Which category is the ‘beaten-down’ business in?” That question you pose hits the nail on the head. Remember blue chip, dividend stalwart Kodak? Of course, hindsight is always 20/20 but sometimes you have an idea about which company may no longer be relevant no matter how much they try and adapt their business. It’s for this reason I like the consumer staples the most. Sure some companies may not survive another 100 years but I’ll take my chances that we’ll still need toilet paper, toothpaste, food, as you mentioned, cleaning products, etc. for many, many more decades out.

      Regarding your own diversification, no need to rush and find that perfect allocation as your portfolio is still quite small. Eventually, you’ll know when, you will want to start weighting your stocks based on your personal preference for volatility and risk. The bottom line, it’s all about being comfortable with what you own. Thank you for stopping by and commenting.

      • Some things will definitely be used for decades to come. There will also be things created/invented that will be used for decades to come as well. For example, I doubt automated / electric cars will disappear quickly, they will just become more common. Or companies that produce parts that will make up all the internet-connected fridges, toasters etc.

        Anyway, yes, it doesn’t need to be perfect (what’s perfect anyway?), it will grow with time. I’m really excited to grow my portfolio into a strong stable of horse-winning companies.

        Tristan
        Tristan @ Dividendsdownunder recently posted…Previous share purchase: SuncorpMy Profile

        • Hi Tristan,

          Thank you for your reply. You make some good points and I agree that lots of created/invented tech of today will be with us for decades to come such as networked appliances, self-driving cars, etc. It’s just difficult to call which company will be the leader or at least a player in those spaces and others in the future. Hindsight is one thing and foresight is another. Of course, as you stated, the tech and our choices do not need to be perfect. Just diversify among the general future trends and long term we should be OK.

    • Hi IH,

      Glad you enjoyed this post. As I mentioned, I think it’s important to review your weightings a few times a year. I don’t stress about trying to find the “perfect diversification” rather look to see if I’m still comfortable with my allocations. In this way, I never become too overweight in any one category that I don’t want to be overweight in. MCD did quite well in the last 52 weeks. People are loving it once again but a short year ago everyone was dogging that name. Thank you for commenting.

    • Hi LB,

      No need to break your head over finding that perfect balance but it is important to check on it a few times a year just to make sure you are happy with your allocations. Thank you for stopping by and commenting.

  10. Hi Divhut,

    It seems your allocation is pretty good. The allocation to sectors in my portfolio is a big mess since I’m still in my acquisition phase. But I don’t worry to much about it, I just try to prevent that one sector takes a big part of the pie but other then that I don’t look after it currently.

    Cheers,
    Geblin
    Geblin recently posted…Walter Schloss investing strategyMy Profile

    • Hi Geblin,

      I’m happy with my allocation and diversification though some might say I’m lacking energy and tech. Like you, I don’t worry too much about my sector allocations. I just like to do a check up a few times a year to make sure I’m still comfortable. As always, I appreciate your comment.

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