Dividend Portfolio Sector Allocation May 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. 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. Most recently, the halving of crude oil prices knocked down all energy related companies as it seemed every dividend income investor was buying an oil major, oil driller or oil services company. With attractive valuations and higher yields being offered many dividend growth portfolios began to skew heavily to energy related stocks. This is why it’s vital to assess your holdings from time to time, if nothing else, to simply decide if your allocations are meeting your needs and comfort level. After all I’m a big proponent of ‘sleeping well at night’ which is why I perform these informal audits of my portfolio holdings.

 

In general, without seeking to achieve a specific percentage goal in mind, consumer staples will be 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 and energy, if I ever pull the trigger, will be a small portion as are other sectors currently such as retail, utilities, materials and now REITs as I initiated, for the first time, three positions in the health REITs, HCP, VTR and HCN in my IRA.

 

Below you will find my asset allocation for my dividend stocks. The biggest change can be seen in my financial allocation in my ROTH account jumping from 10.68% in September, 2014 to 36.89% today. Of course, it’s no secret that this jump occurred as a result of my monthly buying, since last summer, of three large Canadian banks, TD, BNS and RY. At the time I was looking for additional financial exposure as my only holding was WFC. Mission accomplished. I still may be adding to my Canadian banks going forward but not as aggressively as in months past. I still am looking to increase my health exposure via my REIT holdings in my IRA as well as other names already in my portfolio such as JNJ, ABT, BDX, BCR among others.

 

Brokerage Account

SectorSector %Market Value
Consumer Staples25.88%$30,845.55
Industrial Products19.92%$23,736.20
Medical13.03%$15,524.95
Finance12.02%$14,323.03
Utilities6.78%$8,077.97
Multi-Sector Conglomerates6.67%$7,947.98
Retail/Wholesale6.19%$7,370.94
Basic Materials4.72%$5,619.60
Auto/Tires/Trucks2.81%$3,345.08
Consumer Discretionary1.99%$2,373.40

 

ROTH Account

SectorSector %Market Value
Finance36.89%$12,073.01
Consumer Staples34.30%$11,223.51
Industrial Products13.93%$4,557.92
Retail/Wholesale7.70%$2,520.13
Multi-Sector Conglomerates4.50%$1,472.91
Medical2.68%$877.85

 

IRA Account

SectorSector %Market Value
Finance100.00%$1,496.04
Ventas, Inc. (VTR)33.35%$498.97
Health Care REIT, Inc. (HCN)33.32%$498.55
HCP, Inc. (HCP)33.32%$498.52

 

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 HCP, VTR, HCN, TD, BNS, RY, JNJ, ABT, BDX, BCR

35 thoughts on “Dividend Portfolio Sector Allocation May 2015

  1. That is a mammoth growth in exposure to financials in your Roth!

    The sector is my largest at the moment. However, this month it declined somewhat after XL Group purchased Catlin group and so it left my portfolio. It now amounts to almost exactly 25% of my entire holdings. I expect it to continue to decrease over the medium to long-term. However, there are too many financial companies that look too attractively priced at the moment to be ignored!

    Over time I hope my sector allocation will look a little more like your brokerage accounts top 5 sectors. However, I would probably have a higher exposure of consumer discretionary than you have. Is there a particular reason why you have kept this sector quite underweight in your portfolio?

    Keep up the good work!
    Dividend Drive recently posted…I’m Bringing FTSE Back: Linking My Portfolio Yield Goal to the FTSE 100 YieldMy Profile

    • Hi DD,

      As you stated there are many financial companies that still look very attractive. This may include banks, insurers and asset managers. In this market environment where many consumer staples and industrial names remain very expensive from a valuation perspective one must look elsewhere to deploy fresh capital. Over that last ten months or so the large Canadian banks all offered great value and high current yield. As I only owned WFC at the time adding to my financial sector seemed like a no brainer.

      Regarding your question, I am quite conservative and defensive by nature. I feel a lot more comfortable owning staples rather than discretionary stocks for a long term dividend growth portfolio. It’s part of the reason why I do not own any tech names and no energy exposure, yet. Thank you for stopping by and commenting.

  2. Hi DivHut,

    I’m curious why you present the market weights separately per account – shouldn’t you be looking at the weighting of your portfolio as a whole, regardless of the number of accounts?

    What sector classification do you use? “Auto/Trucks/Tires” looks very narrow when compared to the other broad general categories.

    I don’t look at market cap to determine sector allocation in my income portfolio, but Utilities, Consumer Defensive and Industrials are my top 3 on that basis.

    Thanks for sharing!
    Best wishes,
    -DL
    Dividend Life recently posted…April 2015 – Dividend income and portfolio updateMy Profile

      • Hi DG,

        I do take a general look at my total portfolio holdings but I also break it down per account as each account is different in how I’ll be able to access my cash from each. I only look at my portfolio diversification every two or three months just to give me a general idea of where I am currently, and based on the changes, where I am headed. For now I have no maximum exposure limit per sector. I only look at my sector holdings relative to one another and not on a hard percentage number. Thank you for commenting.

    • Hi DL,

      It’s true that a total view might be more beneficial but the reality is that each account has its own merits. For example, I won’t be able to touch any of my funds in my retirement accounts for, at minimum, two decades and probably a little longer than that which is why I look at each portfolio as separate. To your point though, I do take an overall look at all my holdings and look at my portfolios as one whole. For example, I consider my IRA account (which holds only REITs) as diversified as I consider it as part of all all three combined portfolios.

      The sector categories are direct from my Sharebuilder classifications. The “Auto/Tires/Trucks” is actually my one holding in Johnson Controls Inc. (JCI). Thank you for sharing your thoughts and how you determine your own sector allocations.

  3. Thanks for sharing DivHut. Consumer Staples are also my largest sector, but I haven’t added anything to those holdings in a very long time……basically ever since the sector became viewed as a bond proxy. My hope is that a rise in interest rates or currency headwinds will flush some of these investors out and I can find some value in the space again.
    -Bryan
    Income Surfer recently posted…One New Purchase and Two Potential Value InvestmentsMy Profile

    • Hi IS,

      I have a feeling that every dividend investor is itching to add to their own consumer staples holdings. I know many like KMB, PG, CL, CLX, UL and more but current valuations along with some low yield make it difficult to justify a buy at current levels. For my long term money I will happily keep my consumer staples as my largest sector as I like its defensive nature. Going forward though, I also would like to be heavier in the health space. I think that will come largely from my health REITs for now and if valuations become more reasonable from some of the health stocks I mentioned in the article including JNJ, ABT, BDX, BCR among others. As always, I appreciate your comment.

  4. DH,
    I have a similar distribution with consumer, industrial and drug companies being the top 3. I am looking to add technology and finance stocks. Interestingly, I have also started reading up on REITs – mostly on tax implication and how to analyze them.
    Thanks for publishing your portfolio and good luck with future investing.
    D4S
    Div4son recently posted…Diageo PLC (DEO) Dividend Stock AnalysisMy Profile

    • Hi D4s,

      It seems that many like the defensive nature of consumer staples for a long term dividend growth portfolio. The bad part about this sector these days, is the unreasonable valuations most consumer staple stocks currently sport. Curious to see which way you’ll go with your REIT choices. I have been looking and following them (health REITs) for a long time and finally pulled the trigger last week and initiated three new positions. I know many of the dividend bloggers already hold all kind of REITs in various sectors and they have been quite popular for a while now. Hopefully with the rising interest rates REIT prices will go down and we’ll be able to add them to our portfolio at much better prices. Thank you for stopping by and commenting.

  5. This is a really great post. I always find it interesting to see which sectors or industries people gear more towards when it comes to investing. i dont think ive ever really sat down to examine which industries my stocks belong to but this seems like a fund project! From the top of my head I believe I have a good amount in consumer goods, technology, and a bit of retail. I like your allocation. The first thing I learned about investing was “never put all your eggs in one basket”.
    Mabel @ Teach Me To Invest recently posted…Google V. Facebook Battle: Thoughts On Google’s Earnings And Reasons Why I Will Remain A ShareholderMy Profile

    • Hi TMTI,

      Like you, I also like to see where others allocate their capital. This is the fun part of personal finance as stock sector allocation is a very ‘personal’ matter as it correlates to ones risk tolerance and investment attitude. What may work for myself may not be suitable for you. The bottom line is that with sector diversification and even stock diversification within the same sector one can mitigate any potential setback without destroying a portfolio nor dividend income. Thank you for stopping by.

  6. Thank you for showing the reader like me how to build a robust portfolio. According to E*Trade portfolio analyzer, my portfolio is divided as follows.
    Sensitive : 45.84%
    Defensive : 37.68%
    Cyclical: 16.53%

    I guess I should increase Defensive to 50% in order to make my portfolio solid and dependable.
    Dividend Samurai recently posted…Recent Buy – WPC, EMRMy Profile

    • Hi DS,

      For my long term investment dollars I want to be invested in consumer staples the most as I like the defensive nature and stability of this sector. Too often I see other dividend portfolios that are too heavy in volatile sectors or too heavy in unsafe high yielding stocks. As I mentioned in the post many have been buying into energy stocks heavily as oil dropped but soon found their portfolios very overweight in that one particular and volatile sector. Again, sector allocation is a very personal matter and what may work for one person may not work for another. I’m waiting for many of the consumer staples to come down a bit as I would love to add more to many of those names but not at current levels. Thank you for stopping by and commenting.

  7. Keith,
    I just added VTR yesterday to the REITs that I previously owned (HCN, O, OHI, and WPC). Hopefully, prices will decline further and we can add to our holdings.
    Good luck!
    KeithX

    • Hi KeithX,

      It sure seems like interest rate fears are gripping the REITs as they have all fallen quite a bit in the last few weeks. I’m all for better pricing and am sitting on the sidelines just watching the prices drop further. I see you have a pretty nice REIT portfolio. This is something that I am considering doing with my IRA account as several other REIT names look enticing to me as well that are outside the health sector. Looks like my May buys will be in the REIT space as prices continue to tumble. As always, I appreciate your comment.

    • Hi DG,

      Thank you for your kind words. I feel very happy with my sector allocation even though it doesn’t include any tech or energy names. I feel that adequate diversification does not mean you have to own stock in every sector that exists. Thank you for stopping by and commenting.

  8. I use the GICS (Global Industry Classification Standard) sector classification and target a proportional distribution by sector, based on the number of dividend paying stocks in my watch list. Based on this approach, Financials dominate (27%) followed by Industrials (14%), Utilities (13%), Consumer Discretionary (12%) and Energy (10%). I’m not advocating this method of sector allocation — it is just a method that works for me.

    BTW, with this method, my target for Information Technology is 6%, double that of Health Care at 3% and triple the target for Telecommunication Services at 2%.
    FerdiS recently posted…15 Dividend Increases, April 27-May 1, 2015My Profile

    • Hi FerdiS,

      Thanks for sharing your method for figuring out your own sector diversification. I have to say that your portfolio allocation varies from many of the dividend bloggers, myself included, that hold consumer staples as the single largest sector. Interesting to see financial as your top sector especially in the post ‘financial crisis’ world. While many strong names in the financial sector exist, AFL, CB, WFC, TD, BNS, RY, TROW, BEN and more, it seems that most have shied away from this space. Kudos for thinking outside the box. Your comment illustrates one of the main reasons I wanted to start this blog… the exchange of various ideas and real world, not theoretical, investment ideas. As always, I appreciate your comment.

    • Hi Vivianne,

      I think it’s important to see how your investments are allocated, at least every few months, as the constant addition of fresh capital as well as price fluctuations can really skew portfolio values without your intention. I’m not saying that a daily or weekly analysis is required, but at least once every two or three months should suffice. I’d be curious to see a similar post from you and compare portfolios. Thank you for commenting.

    • Hi FV,

      There’s no doubt that my long term goals will be tied to the consumer staples sector. One thing that you will notice from my portfolio is that I like very defensive names and do not chase yield. I know many starting out on their dividend growth journey like to focus on high yield from various companies, MLPs or REITs. That has never been my method. As you stated, I plan to stay the course and remain heavy on the consumer staples side. Thank you for stopping by and commenting.

    • Hi BSR,

      I have to agree that the consumer staples offer very reliable dividends, however, I’d suggest that the financial sector is slightly less reliable. Looking into May, with REITs dropping because of rate fears, I’ll most likely be adding to my VTR, HCP and HCN. Thank you for your comment.

    • Hi TEG,

      Right now my portfolio has 46 positions. It’s pretty diverse with 9 new stocks (TD, BNS, RY, UL, DOV, ADM, VTR, HCP, HCN) added in the last year. It is quite rare for me to add new positions to my portfolio as for the seven years prior I have not added anything new. I feel there are many great companies out there that deserve a spot in my long term dividend growth portfolio so I don’t feel a need to set an arbitrary limit of say 30, 40 or 50 individual stocks. That being said, I think it’s important to diversify your income stream as much as possible as one day it will be this income stream that will support you later in life. For now, and the future I do not plan to use any ETFs just individual stocks. In some manner I have created my own ETF. Thank you for stopping by and commenting.

  9. Hey DivHut,

    Glad to see that you did your sector allocation examine as well.

    Yesterday, very first time I examined my portfolio’s sector allocation, I was quite surprised that only three sectors (finance, energy & utilities) worth more than 55% of my overall portfolio value. Too bad approach and very risky.

    So, I created my own diversification strategy, and am planning to make new purchase toward my targeted allocations.

    Happy investing!

    Cheers,
    Finance Journey recently posted…Dividend stocks portfolio – diversification and recent updates -May 2015My Profile

    • Hi FJ,

      Too often we neglect our portfolio sector allocation and are surprised to see how we are not really as diversified as we’d like to be. I do a check every few months just to see where things stand especially if I have been adding a lot to a particular sector for a few months. In my case, I have been adding a lot of financial names to my ROTH over the last ten months or so which really brought up my weighting there. Of course, this was my aim as I was lacking banking exposure with just a small position in WFC. Thank you for sharing your thoughts and keep an eye on your portfolio weights.

  10. Funny timing as I have recently reexamined my portfolio allocation and was thinking of posting it. This is a very important exercise and just today I helped a good friend with his. By doing so, he realized he was overweight in energy so it gave him some direction. Here is my dividend portfolio allocation by sector:

    Consumer/Non-Cyclical 22%
    Industrials 13%
    Energy 9%
    Financial 9%
    Tech 9%
    Consumer Cyclical 8%
    Transportation 8%
    REIT 8%
    Healthcare 6%
    Basic Materials 3%
    Telecommunications 3%
    Utilities 3%

    – HMB
    HMB recently posted…Stuffing MoneyBags – April ’15My Profile

    • Hi HMB,

      Great looking weightings. Your portfolio looks very balanced for many different sectors. Good job. Of course, portfolio allocations are a reflection of our own investing styles, comfort level and risk tolerance. I see a pretty decent allocation to your REITs sector. I just started small positions in three health REITs last week and am debating how large of a holding I’d like them to be. I’m guessing over time I’ll be adding more. I just want to be a little cautious and take my time. Thank you for stopping by and sharing your diversification.

  11. I don’t think I’ve ever done a sector allocation check on my portfolio. But that’s really because I “don’t care”, meaning I don’t really have a preference for which sectors I have the most of and by what percentage. I know what sectors I don’t want, what sectors I do want, and what sectors I want a lot of. I buy accordingly, making sure I not only have a broad swath of sectors in my portfolio, but multiple companies per sector.

    If I were overweight in one sector, it would be the one you said every DG investor suddenly became overweight in: energy. To that, I say “Oh hell yeah”! As long as we are seeing once-in-a-lifetime valuations like this, then a good chunk of my money will go to energy. I’ll buy around it when I feel I have enough (I tend to mix-and -match my purchases) in order to even out the weighting I don’t check. Though I would love a place than can just calculate your sector allocation for you. My account doesn’t have an option for that.

    Sincerely,
    ARB–Angry Retail Banker
    ARB recently posted…Which Is Better: A Prepaid Debit Card Or A Traditional Bank Account?My Profile

    • Hi ARB,

      I’m a bit like you in terms of checking up on my portfolio allocation but not quite as hands off. I think it’s important to see where you stand at least once every few months as stock portfolios can become very out of balance if you are not watching it at all. It may not matter now when you are in an accumulation phase of assets but I can assure you that once you are “retired” or at least dependent on your dividend income just to live you’ll want to make sure you aren’t overly reliant on any one particular stock nor sector. After all, it will be that diversification into various stocks and sectors that can save you if things ‘go to hell’ in a particular holding or sector of yours. Thank you for commenting.

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