Dividend Portfolio Sector Allocation September 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. In the last year or so we have witnessed the 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 or oil services 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. More recently, we have seen the cyclical industrial names take a severe beating as Caterpillar Inc. (CAT), Emerson Electric Co. (EMR) and all rails like Union Pacific Corporation (UNP), Norfolk Southern Corporation (NSC) and the like join in the rout. Sure, it’s hard to ignore the much better price, value and yield these dividend stalwarts are offering but one has to be aware that their portfolios do not become too heavily weighted in one or two sectors. Of course, this is a very personal matter as investing is very individualistic as we each have our own investment and risk tolerances which is evident in our slightly different portfolio holdings.

 

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. I like to do this every few months or so as my own buying biases have no doubt affected my sector allocations. After all, most of you already know that in about one year I went from having zero exposure to Canadian banks to a “significant” exposure to the sector as I have been slowly adding to my The Toronto-Dominion Bank (TD), The Bank of Nova Scotia (BNS) and Royal Bank of Canada (RY).

 

In general, without seeking to achieve a specific percentage goal in mind, 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.

 

Below you will find my asset allocation for my dividend stocks. A notable change can be seen in my financial allocation in my ROTH account jumping from 36.89% in May, 2015 to 44.52% today. Of course, as I mentioned above, 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 especially since other names in the industrial sector are looking more enticing. I am still 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 Staples27.37%$30,918.97
Industrial Products19.24%$21,735.45
Medical12.59%$14,224.35
Finance12.08%$13,649.95
Utilities7.48%$8,445.01
Multi-Sector Conglomerates6.40%$7,235.63
Retail/Wholesale6.00%$6,776.11
Basic Materials4.41%$4,986.94
Auto/Tires/Trucks2.37%$2,676.91
Consumer Discretionary2.06%$2,326.26

 

ROTH Account

SectorSector %Market Value
Finance44.52%$15,598.24
Consumer Staples30.90%$10,826.69
Industrial Products11.81%$4,137.72
Retail/Wholesale6.74%$2,361.50
Multi-Sector Conglomerates3.74%$1,311.19
Medical2.28%$798.54

 

IRA Account

SectorSector %Market Value
Finance100%$5,395.30
HCP, Inc. (HCP)33.96%$1,832.33
Health Care REIT, Inc. (HCN)32.89%$1,774.25
Ventas, Inc. (VTR)28.91%$1,559.95
Care Capital Properties, Inc. (CCP)4.24%$228.77

 

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, CCP, TD, BNS, RY, JNJ, ABT, BDX, BCR, EMR, CAT

30 thoughts on “Dividend Portfolio Sector Allocation September 2015

  1. I think you’re really wise to make consumer staples and industrials the core of your holdings. I’m rather overweight in oil majors as I’ve been adding as RDSB has fallen so much. However, like you, I’m adding to consumer staples with Unilever recently increased, and hopefully will add some more soon.

    One area I disagree on is having such a high percentage coming from financials, however I exclude the Canadian banks due to their conservative nature. I’m really really low on financials due to not being able to get tax-advantaged Canadian stocks in my UK accounts.

    Cheers
    M from theresvalue recently posted…Do I Need an Emergency Fund?My Profile

    • Hi M,

      I always felt the most comfortable making the consumer staples my largest holding in a long term dividend growth portfolio. I like the stability and dividend growth the most this sector offers. Sure, capital appreciation might not be there as much but I am most interested in long term dividend growth first. I would like to add to my UL as well but the industrial names are really offering up some great value and yield which is too hard for me to ignore. Names like CAT, EMR and DOV come to mind.

      The financials I have in my ROTH are only three Canadian banks, TD, BNS and RY and when compared to my overall holdings my financial sector is still much, much smaller than my consumer staples. As always, I appreciate your comment.

  2. Ciao DH,

    Sector allocation is important in my view, I have Energy, Consumer Staples and Industrial (in this order) at the top three places, although Energy sector is seeing more investments right now as prices are quite depressed. It’s part of my strategy to keep the PF diversified as much as possible. This makes things much harder to manage (not easy to find good stocks in all sectors), but technically should grant more stability to the Portfolio.

    Ciao ciao

    Stal

    • Hi Stalflare,

      I think you are not alone in having energy as your largest sector. Over the past year I have been reading about a lot of energy buys among the dividend growth community. While it’s true that it’s not always easy to find good stocks in all sectors you have to continually think of the market as a market of individual stocks and not a stock market. Makes sense? There are always some values to be found. The bottom line is that as an individual investor you ultimately have to feel comfortable with what you own as well as the amount you own. Thank you for stopping by and commenting.

    • Hi FV,

      From day one I wanted my overall portfolio holdings to be very defensive. No high risk yield from MLPs, BDCs, mREITs, micro/small cap companies nor volatile energy plays. Just a diverse set of plain old boring consumer staples with other sectors for diversification of course. I’m open to energy but only the super majors like XOM and only as a small percentage of my holdings. Thank you for commenting.

  3. DivHut,

    After selling off my position in BHP Billiton (BBL) today for some tax harvesting, I re-fueled my portfolio with a $1500 position in Wal-Mart (WMT). Right now, my largest sector is Industrials at 32.5% with 51 shares of Caterpillar purchased at levels of $74 and $65. Looks like it may go even lower, but my portfolio still needs balance. I have only been at this for six months, but my eyes are open to the benefits of diversity and the opportunities in the current market. I will take a look at the Canadian banks next.

    Thanks,
    Joe

    • Hi FBTFB,

      For my long term money, stability and dividend growth I always choose consumer staples first. Very defensive and mostly non-cyclical unlike industrial names. CAT is a great pick up but just realize that the stock price will often go from boom to bust cycles as economic climates change. As long as the dividend is safe and keeps rising I’m happy and do not care much about stock prices on a day to day or even year to year basis. CAT survived the meltdown of 2008/09 and still raised dividends during that tough economic climate. They have been here before. Keep building that portfolio of yours and make sure you are always comfortable with your diversity and sector allocations. Thank you for commenting.

  4. Very nice and risk averse sector allocation!

    I just started building my portfolio over a year ago and started with buying into the sector which dropped more than the others. Hopefully over many decades, my portfolio will balance itself this way.
    At the moment I’m heavily allocating into energy, followed by financial/REITs and just recently healthcare/biotechs.
    As consumer staples are the most defensive stocks and thus will drop only minimal in price, I think they will come last to my list.

    Thanks for sharing!
    Cheers and good luck to you
    DivRider

    • Hi DR,

      I have always loved the consumer staples because of their defensive nature. As I stated in the blog post I like to sleep well at night and I know that if I had my long term money heavily weighted in energy or some high yield mREIT I’d have many sleepless nights. Sure my portfolio may not be the highest current yielding when compared to others you see online but the defensive nature and dividend growth my portfolio offers keeps me calm inside. I would love to add even more to my consumer staples and health stocks but the value and yield is simply not there when compared to the industrial names and Canadian bank stocks. For now I am going after the better valued higher yielding plays. Thank you for stopping by and commenting.

  5. Seems like a solid allocation strategy. I haven’t really thought my allocation strategy through, I’ve just told my self that no segment should overweight the portfolio, guess I have some sorting out to do.
    Thank you for sharing.

    – mraitn

    • Hi mraitn,

      As I mentioned in the blog post I don’t have any hard numbers for my portfolio allocation in terms of X percentage in this sector and Y percentage allocated to that sector. Rather I have built my portfolio first with the consumer staples and industrial stalwarts and have later added to my portfolio additional companies/sectors over time. It’s OK if you haven’t “officially” thought out a diversification strategy. This is an informal audit I like to to do every few months just to make sure that because of my buying and price movement I do not become too uncomfortable with my holdings. I appreciate your comment.

  6. I also look at my allocation from time to time and I probably need to reexamine it once again. My energy exposure is higher than I’d like but I’m still comfortable with it because there’s some great DG companies available there. But like you I want to bump my consumer staples allocation up a lot but unfortunately those sectors are typically pricey and for good reason. Healthcare is also a no brainer to be heavily allocated towards but like the staples the quality companies are either expensive or have low starting yields. I’d also like to bump up my REIT exposure as well but I’m hoping to do that after rates are increased because I still expect a decrease in the share prices as Mr. Market overreacts to it. I’m seeing a lot of value in the industrial/cyclical companies as well like EMR, ETN, MMM. Financials are probably middle of the pack for my ideal allocation but I want to shy away from the big US banks. I want to increase my exposure to V, start a position in ADP or PAYX, asset managers and CDN banks, not the traditional financial holdings I guess. Guess I’ll have to check to see how my ideal allocation matches with my actual.
    JC recently posted…You Can’t Clean Up A Messy Valuation: The Clorox Company Dividend Stock AnalysisMy Profile

    • Hi JC,

      Your comment highlights the key element of portfolio allocation and diversification, comfort. As you stated, you already have a high allocation to energy but still feel comfortable and that’s really what counts the most. Like you, I want to add to my consumer staples but as you already know they are expensive for a reason. Not much volatility in many of those names and not the greatest yield as well especially when compared to the beaten down cyclical industrial names or some financial names out there. I like some of your potential financial picks. Mine aren’t only banks either as I hold REITs and insurance companies AFL and CB besides the Canadian banks and WFC. If things stay the same going into October I think more EMR may be in order. As always, I appreciate your comment.

  7. Nice work! Sector allocation can matter more for total returns than individual stock picking over certain time periods, so it’s good to be aware of what you are betting on. Your portfolio’s sector weightings have some similarities to the dividend aristocrats, which are most weighted in consumer staples (25%), industrials (15%), financials (13%), and healthcare (13%). Thanks for sharing and best of luck!

    – Simply Safe Dividends
    Simply Safe Dividends recently posted…Broadridge Financial Solutions (BR): A Boring but Excellent Dividend Growth StockMy Profile

    • Hi SSD,

      Thank you for the kind words regarding my sector allocation. It’s no secret that I have based my own portfolio model on the dividend aristocrats. The aristocrats were the very first list of stocks I looked at when considering what to buy in the beginning. Of course, I have added names to my portfolios that are not dividend aristocrats once I felt sufficiently diversified with my core portfolio holdings. I like to write these posts every few months or so just to see where I’m at in terms of sector allocations and if I still feel comfortable with my holdings. Thank you for stopping by and sharing your thoughts.

    • Hi D4s,

      I always believed in slow and steady when building a long term dividend growth portfolio. After all, we are running a marathon and not a sprint. My portfolio may not have the highest current yield but it does offer a lot of stability and dividend growth. I always believe in making monthly buys (one at minimum) and with commissions so low ($2) I am able to buy in small amounts too and nibble into positions instead of gorge. This way I can average in over time and not worry too much about sudden price declines. Thank you for stopping by and commenting.

  8. Really? No energy? I love the energy sector, and not because of the valuations of the past year. No, I love it because of the behind the scenes nature of it.

    Every light in our homes, every car and bus and train, every electronic device, every piece of food we buy or cook, every piece of plastic, etc., required oil and/or natural gas to come into existence. The world pretty much runs on it. Even as oil prices fall, it’s only temporary. Candlelight isn’t coming back. Energy will always be here to stay, even as it takes new forms such as LNG, nuclear, wind, and solar.

    As far as safe SWAN holdings go, I can’t think many sectors out there as good as the energy sector. Except for consumer staples, of course.

    That’s just my personal take on the situation. Why do you find yourself avoiding energy?

    Sincerely,
    ARB–Angry Retail Banker
    ARB recently posted…How To Write Out A Check 101My Profile

    • Hi ARB,

      I have had my share of comments here regarding my lack of energy in any of my portfolios before. While your comments make sense and to an extent I agree with everything you have said, the key reason I did not buy into energy yet is because it is a very volatile sector. For my long term (keywords ‘long term’) dividend growth portfolio I really want to sleep well at night and watching pure commodity based stocks rise and fall in such dramatic fashion would keep me up at night. Again, I’m not against energy at all. I have owned CVX in the past, pipelines, ETP, EPD, KMI and even APU. I’m not averse to energy and today still have quite a few names on my watch list. I just am very cautious about the sector in general and would feel comfortable starting a small position in a super major like XOM to start. Just not today 🙂 So, as you can see, I have owned quite a few names in the energy sector in the past but they were more trades than long term holdings. I always appreciate your opinions and comments.

    • Hi R2R,

      The dividend race, or marathon as I like to call it, does continue. The key is to seek a portfolio balance during this marathon that lets you sleep well at night. I’m afraid too many portfolios are swimming in oil which may impact dividend income and total returns in the future. For all the energy buying that has been going on the last year I have started to read some sales coming in with NOV being the most recent to be let go. First, other drillers like SDRL or RIG started to be sold from various dividend portfolios and with so many DGI heavily weighted in the sector I fear many will become less comfortable with their sector allocations. Cyclical industrial names still look good to me though. Thank you for stopping by and commenting.

  9. You probably do this already (just not in this post) but remember allocation across the different accounts. 🙂

    I’m heavy on consumer staples and utilities too, though the utilities portion has been slipping w/o any of my input!
    Jim recently posted…Why Do You Work?My Profile

    • Hi Jim,

      Absolutely. I do look at allocation across the different accounts I hold as separate but also as part of a whole. The key is to simply be aware, over time, about all your allocation. There’s a lot to like about the consumer staples long term. It’s a sector that really affords one peace of mind because of its defensive nature. The past year though has seen many dividend growth portfolios skew towards energy to a comfort level I would not like. Thank you for your comment.

  10. DH,

    I like your overall allocations, probably what I am aim for in the long run as well perhaps with more materials and less utilities. I’ve been adding Consumer Staples via Loyal3 because though the sector has not been beaten down there are still a few good opportunities like WMT.

    – Gremlin
    Dividend Gremlin recently posted…Loyal3 Buys, September 2015My Profile

    • Hi DG,

      I think many dividend growth bloggers are waiting for better values and yields to appear in the consumer staples sector. Clearly, it’s a favorite sector among long term dividend holders but, as you stated, deals are hard to come by. Believe me, I’d love to add to my CL, CLX, KMB, PG, KO, PEP, GIS, UL and more but, quite frankly, see a lot more enticing opportunities in the industrial sector at present. Thank you for sharing your thoughts.

  11. DH,

    Excellent piece. I agree that sometimes as dividend growth investors, we must take a step back and review our portfolio weighting. I must admit that I have fallen victim to purchasing a heavy dose of energy companies during the oil collapse. Diversification can be equally important when seeking to generate healthy yet consistent dividend income for the rest of one’s life. As of right now, I am torn between purchasing more biotech stock (e.g., GILD) or initiating a new position in cyclical names (e.g., CAT, DE).

    DC

    • Hi DC,

      It’s a dangerous game when stock prices decline dramatically and yields begin to seduce as we all saw this happen in the energy space and many dividend bloggers became super heavy in oil. Again, this can be OK if you are comfortable with this type of allocation. It’s what makes personal finance, personal. We each have our own degree of risk tolerance we are willing to take on. I’m still looking to add to my consumer staples and health stocks too but see a lot more value and opportunity in beaten down industrial stocks like CAT, EMR, DOV and more. Thank you for sharing your thoughts.

  12. Hi Divhut

    Consumer staples is a great choice because they are not as cyclical to other industries which can go up and down like a roller coaster. On and off there will be a fall in sales consumption but regardless of recession or not, it’s not going to go away anytime soon.
    B recently posted…The Psychological Problem of WaitingMy Profile

    • Hi B,

      Your comment is exactly why I love consumer staples and why it’s my largest overall sector among all my portfolios. For my long term money I want to be able to sleep at night and not worry about roller coaster stock performances nor major shifts in industry. Thank you for stopping by and commenting.

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