Diversified Dividend Portfolios: Don't Forget About Quality

Diversification is a process that allows dividend investors to spread their risks between different sectors and asset classes. The goal of this exercise is to minimize the risk of ruin and ensure portfolio longevity, while minimizing fluctuations in income and principal. Many dividend investors perceive diversification as a dirty word, given the fact that not every sector of the stock market delivers consistent dividend payouts. As a result, the portfolios of many novice dividend investors tend to be concentrated in higher yielding sectors such as MLPs, Utilities, REITs and Financials. Even such sectors as consumer staples could pose risks to dividend investors, if they have a disproportionate allocation there. The risks of concentrated dividend portfolios could best be evidenced by the events that occurred during the financial crisis of 2007-2009. Financial stocks were some of the favorite picks for many dividend investors, given their long histories of dividend growth and... Read more