During Accumulation Phase, It's OK To Be Concentrated

by: Canadian Dividend Growth Investor

Currently, Intel (NASDAQ:INTC) is one of my biggest holdings, about 11% of my US dividend growth portfolio. It got bigger as I dollar-cost averaged into the position. I was worried about the chip giant for a few months because its share price seemed to be on a spiral downwards, but I do think the worst maybe over. There are 2 factors which got me worried: 1) I bought too many shares as I was averaging down, and 2) my portfolio is oversized with technology companies, namely, Intel, Microsoft (NASDAQ:MSFT), and Apple (NASDAQ:AAPL).

When building our portfolios, we aim for diversification. Some aim to diversify across various sectors and industries. Others yet diversify more with companies with different market capitalization. The question is, at a single point in time, is it wise to be concentrated in one sector?

Then, it hit me. The fact is, I'm still in the early stage of accumulation for my dividend growth portfolio, as such, I can only take what the market offers me. And right now, the dividend companies in the technology sector are on sale. Intel with a P/E of 10.3 (normal P/E is 16.6) sporting a yield of 4%, Microsoft with a P/E of 10.3 (normal P/E is 17.1) sporting a yield north of 3%, and Apple with a P/E of around 9 sporting a yield north of 2.5%.

Do I wish to hold more dividend companies in other sectors? Certainly I do. I would like to add some staple dividend growers. They include Colgate (NYSE:CL), Procter & Gamble (NYSE:PG), and Kimberly-Clark (NYSE:KMB). But now is not the best time to get into them, as the overall sector is overvalued. (Individual companies are too!) I also want to add Healthcare companies like Johnson & Johnson (NYSE:JNJ), and Medtronic (NYSE:MDT). I also would like to initiate positions in the energy giants such as Chevron (NYSE:CVX) or ExxonMobil (NYSE:XOM). After this recent pullback, it's not a bad time to start shopping for good value in these stalwart companies.


What I want to get at is...sometimes we just have to take the best deals on the market. The ones that have the 'On Sale' signs with the plan to eventually sell some of those shares back to buy (and diversify) into the next sector of blue chip dividend stocks which would be screaming 'On Sale' at a later point in time. Therefore, I think it is ok to be temporarily concentrated in a company or sector in a portfolio as long as you bought those blue chip dividend stocks at a bargain. Then, collect those growing dividends while you wait for its share price to rise. After it reaches fair valuation or overvaluation, (or even before then) you can sell some of those shares to buy the next bargain at the time for diversification. Besides, during the accumulation phase, there's new money coming into the portfolio anyway. New investments will lower the portfolio concentration of existing holdings.

Disclosure: I am long AAPL, INTC, MSFT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.