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.
| Diversification | ADVANTAGES | DISADVANTAGES |
|---|---|---|
| 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:
- Multiple companies
- Different industries/sectors to avoid relying on a single sector
- 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