While I was updating my portfolio page to reflect the prices as of end of May and also to include the dividend information, I noticed a big risk.
One of the things that is discussed a lot (in the dividend blogs I visit) is portfolio diversification – to make sure that all stocks are almost equal weight in the portfolio. But l have not seen any focus on dividend diversification. Dividend diversification is to make sure that all stocks provide almost equal projected dividend income.
The list below is sorted by the amount of projected annual dividends. 6 stocks (GE, MO, KMP, ARCP, AAPL and HPQ) contribute close to 60% of my total projected annual dividends. This is considerably risky if I expect dividends to be a consistent stream of income because if 1 or 2 stocks from this list cut or eliminate dividends, it will be a big hit to my planned revenue stream.
With ARCP being a pure speculative bet (and also a new investment) and HPQ not completely out of the woods yet with their business transition, there is definitely some risk to their dividends.
Stocks like ARCP and KMP do not have a lot of weight in my portfolio, but looking at them from dividends standpoint gives a whole new perspective due to their high yields. Suddenly, these companies look more critical and risky to my dividend growth journey. So I think it makes sense to look at the portfolio both from stock value standpoint and future annual dividends.
Course of Action: I need to diversify my future investments accordingly in order to spread out the projected dividends. New investments and investments in lower volume stocks like PG, COP and GIS would help to balance this out.
I plan to review this list once in a while to make sure I am making progress.
|Stock||Total Quantity||Annual Dividends||% Annual Div||Yield|
I am long on all the stocks mentioned in my portfolio. Also, though I look at the possibility of ARCP/HPQ cutting dividends, I am NOT in any way suggesting that they are going to do that. I am just analyzing the possibility of what happens if they do.