Diversification

Diversifying Your Dividend Portfolio

To minimize risk and ensure a steady income stream, you should diversify your dividend portfolio

There are some pros and cons to diversification, but I believe the benefit of reduced risk far outweighs the potential upside of a concentrated portfolio.

DiversificationADVANTAGESDISADVANTAGES
Diversified (25+ stocks)Reduces risks, including company-specific and industry/sector risks.
Relative protection against large losses.		Requires more time and effort to maintain and monitor
Concentrated (less than 10 stocks)Outperforming stocks can have a greater impact on your portfolio’s value.
Easy to manage & monitor.		Concentration increases risks of severe losses of portfolio value and income.
Increased company-specific, sector/industry and geographic risk.

The average diversified portfolio has around 20-30 stocks, with research suggesting you get most of the diversification benefits by owning at least 20 stocks.

A Dividend Portfolio should be diversified across:

  1. Multiple companies
  2. Different industries/sectors to avoid relying on a single sector
  3. Consider international dividend stocks for additional diversification benefits. This is challenging to achieve since non-U.S companies don’t tend to have as shareholder-friendly dividend policies and payouts fluctuate with earnings.

There are various metrics