Thursday, March 24, 2011

Dividend Portfolio Analysis: Part 1

When I updated my 'Portfolio' tab for the month of march, I also mentioned that I would do an in depth analysis of my Dividend Income Portfolio. From that assertion, this series was born.
             For this post, I will address some overall details of my portfolio - my current holdings, some 'macro'-level highlights, and will then spend the rest of the article addressing my portfolio's Diversification.

To start, let's take a look again at my current holdings:

Portfolio Quick Facts
*Number of Holdings: 11
*Number of different sectors: 6
*Average yield: 3.7%
*Overall Portfolio Style: Large Value

Analysis Introduction:
As mentioned in my first portfolio analysis article, in order to conduct a thorough analysis, but one that is easy to understand, I will 'assess' my portfolio in 3 categories: Diversification, Dividends, and Risk.  Finally, I will assign a 'grade' to each section and at the end will then provide an 'Overall Portfolio' grade.  This article will focus on Diversification:

Grade: B 

Pros - My portfolio has 11 companies represented in 6 different market sectors: Health Care (ABT, JNJ), Business Services (ADP, PAYX), Consumer Goods (PG, PEP, LEG), Industrial Materials (GE, WM), Financial Services (CINF), and Utilities (SO).  Though 11 holdings is not ideal, it is better than having all assets tied to only several, or even a handful, of companies.  I will continue to add holdings as purchase prices are attractive and can offer a decent factor of safety and capital appreciation.
     Assessment - from first glance my portfolio appears diversified.

Cons - 28% of my portfolio is tied in health care (my two largest holdings - ABT, JNJ).  Health care generally offers good growth potential, but often comes with a lot of risk.  Second, 27% of my portfolio is in Consumer Goods (PG, PEP, LEG).  As a result, over 50% of my portfolio is tied to 5 stocks and only 2 sectors.  Finally, I have no holdings in the following: Energy, telecommunications, software, or consumer services, and have only a small position (CINF) in Financial Services.
    Assessment - after further analysis there is room for improvement and are a few 'holes' in my current portfolio's diversification.

Conclusion - My portfolio's diversification is average.  I am tied to 55% Large Cap Value, 33% Large Cap Growth, and about 12% Mid/Small Value and Growth stocks; which achieves my personal preference towards Large Value stocks; however there are significant sectors not represented such as Energy and Consumer Services.  I will continue to add holdings over time and as funds become available; but expect my next move to be in one of those sectors.

I'd love to hear your thoughts.  Please comment below.

Until next Thursday for this series.  Be sure to look for other posts throughout the week.

Thanks for reading,


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  1. Hey man,

    Great site! :)

    I really like your list of dividend payers. I would like to own a few myself, namely, PG and WM.

    Do you find KO attractive right now?

    Stay in touch!

  2. Great post. Always good to do a little self-check on one's own portfolio.

  3. My own advisor,

    I would say KO is not too much of a buy right now as far as valuations go. It's definitely a solid play, but it is not relatively cheap either. If it were closer to $58 or even $60, then yes.

    Take care!

  4. Go get some VZ/T for telecom yielders
    Go get some CVX for energy play (almost 3% yield)
    If you into MLP, get some KMP, NRGY, LINE or TOO for safe energy dividend
    Go get some KMB for consumer services
    Sin consumer product: MO
    Maybe some delivery stocks (FedEx or UPS)

    Full Disclosure: Long VZ/T/CVX/KMB/MO

  5. health care's a great sector, but I'd say invest a little bit in the defense sector. If your not a big fan of the defense sector and your looking to diversify get your hands wet in the tech sector like everyone else is doing right now.

  6. two quick questions: 1-- why Southern instead of many other choices; 2-- how do you calculate avgyield--do you weight?
    I like all the others, currently holding JNJ, PEP, WM, looking to return to LEG when cash available. Still scared on financials, though CINF looks "best of breed."

  7. Robber Baron,

    For your first question, I chose SO simply to own a Utility. So the short answer is it was just for increased diversification. I plan to eventually own at least two utilities, but I chose SO over the others becasue I was looking for a company that was reasonably priced and one that had a history of growing dividends. SO fit the bill at the time I entered (around $33). There are other decent options out there.

    As for average yield, I do weight based on my holdings. Current weighted yield of my portfolio as of today was 3.75%.

    Thanks for commenting!


  8. I'm fairly heavy into health care as well. I spread the risk into five companies in several areas.

    JNJ and ABT: diversified pharma and consumer health
    BDX and MDT: medical device producers
    CVS: retail pharmacy and benefits management

    The sector as a whole lagged in 2010, but another way of looking at it is that the values are still values.

  9. Hi Partisan-- I am just beginning to consider holding individual issues after years of holding nothing but mutual funds and ETFs. Since I love the core concept of the Jensen Potfolio (JENSX) mutual fund, which is to hold only stocks which have returned over 15% Return on Equity (ROE) for the last 15 years, I have been reverse-engineering that fund via my Morningstar premium membership. I note that 6 of your 11 stocks are in JENSX portfolio, which only has 28 stocks. They are ABT, JNJ, ADP, PAYX, PEP and PG. JNJ will be my first buy since it is almost a mutual fund by intself: 1/3 pharma, 1/3 medical devices, 1/3 consumer products.

  10. Anyone have any thoughts on Duke Power? DUK...a reasonable yield and seemingly solid company? Just bought PGN.

  11. Chirpster,

    It sounds like you have a great plan in place. Thanks for the note about the JENSX fund...I wasn't familiar with that before now but nice to see I have a decent amount of holdings that qualify.

    Can't go wrong with JNJ right now, but I'd get it quick before the price increases. Keep in touch,

  12. Eagledavey, I have thought about DUK a few times; think the price is a bit high right now, but I haven't done any in depth research on it as of late. Anyone else?