2018 is in full swing and the dividend keeps on coming. As a Canadian, I hope you have diversified into the US to benefit from the red hot US stock market. Regardless of your investing strategy, you should have exposure to the US market.
I was researching industrial stocks and nearly all of the 30 stocks I had listed were trading at their peaks. That's impressive as it was most of the stocks and not just 1 or 2.
If you have been following me over time, you would know that I have a portfolio strategy where I target a certain percentage per sector and I also limit my exposure to 5% or less which establishes how many stocks I should hold per sector at a minimum. These two portfolio strategy pillars take the emotion out of investing;
- Sector targets
- Holding cap in portfolio
I have adjusted my target a few times in the past 5 years based on my self discovery and investment learnings. I started with a more averaged approach across sectors, but I had a few realizations along the way:
- I have no bonds. The strategy of having a bond to stock ratio based on your age is not a strategy I find adequate in the low interest rate we are in and with our life expectancy. As I approach living off my portfolio, I will establish a laddered bond strategy for cash access over years.
- I have no Basic Materials. I simply do not understand the markets and the commodity business is not a field I want to spend time learning. As such, I decided to drop Potash and Agrium a while back and stay out of the sector.
- I have no Consumer Cyclical. In general, I found it difficult to find companies that I wanted to hold. I had McDonald's (NYSE:MCD) for 5 years, and as my portfolio grew and needed to find other holdings, I could not settle on any stocks and preferred other sectors. I made the decision to stay out of the sector.
I finally added a new stock to my industrial sector using my cash on hand and my 2018 TFSA contribution. I purchased 3M (NYSE:MMM) and it represents 3.38% of my portfolio while Canadian National Railway [TSE:CNR] (NYSE:CNI) represents 7.34% of my portfolio.
While I could sell 30% of my CNR holdings, my healthcare exposure has grown and AbbVie (NYSE:ABBV) leads the pack with an 8.22% portfolio exposure. According to my portfolio strategy, I also need to add another healthcare stock. With a 16% target and a maximum exposure of 5%, I need 4 holdings and I only have three with Johnson & Johnson (NYSE:JNJ), AbbVie, and Cardinal Health (NYSE:CAH).
Sector Diversification - January 2018
After the purchase of 3M and the earnings season, my diversification looks like below. I like to leverage new money to rebalance, but it may be worthwhile to use February, May, August and November as the month to do some rebalancing. It's the month after the earnings season which would take into consideration the fluctuations incurred from the earnings.
My January 2018 dividend income is $1,485.79. It's $400 more than January 2017 and around a 40% increase year over year. I had a 25% growth the year prior. Since I switched to focus on a dividend growth, my dividend income has seen the growth year after year. My stock selection criteria focuses on dividend growth stocks with a 10% CAGR growth over 10 years and it has worked out well.
DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.
DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk - see my full disclaimer for more details.