Dividend Champion Diversification

Nearly anything we do carries with it a level of risk.  Risk is an inherent part of life we accept.  We learn to mitigate or transfer it in a variety of ways.  We use seat belts when driving (mitigation) and purchase home owners insurance (transference).

Investing also presents risk to the investor.  As Dividend Farmers, it’s our job to mitigate the risk while maximizing our result.  One way of reducing our investment risk is to spread our money across multiple investments with different characteristics. 

Instead of putting all our money in the Blue Sky Co. and watching it vanish entirely if Blue Sky crashes, we allocate or diversify our resources across firms in various sectors or industries.  Doing so ensures that if one firm becomes insolvent it doesn’t take our full investment down with it.

Spread your investments to reduce risk.

One way to diversify a portfolio is to select a variety of Dividend Champions.  The first chart below offers a list of the 5 most commonly found sectors among the Champions list from 1/31/19. 

Sectors represent broad cross-sections of company types from which to choose.  For instance, the Financial sector is heavily represented with 33 different banks and insurance firms among those growing their dividends for 25 or more consecutive years.  The Industrials sector includes Aerospace, Machinery, and Commercial Services firms conforming to the 25 year minimum dividend growth history.  

Top 5 Dividend Champion Sectors

Sectors	Champions	Representation
Financials	33	Banks & Insurance
Industrials	25	Aerospace, Industrial Conglomerate, Machinery, Commercial Services
Consumer Staples	17	Food, Household Products, Tobacco
Utilities	16	Electric & Water
Materials	11	Chemicals, Containers & Packaging, Mining & Metals

Each of the sectors may be further segmented into industries.  For instance, the Chemicals industry is a component of the Materials sector.  Subdividing sectors into industries offers investors an opportunity to fine tune their portfolio diversification in a more granular way.

Top 5 Dividend Champions Industries

Industry	Champions
Banks	19
Machinery	11
Insurance (tied)	8
Chemicals (tied)	8
Water Utilities	7

An interesting point when looking at the top sectors or industries within the Dividend Champions list is that technology firms aren’t found among the top 5 in either case.  Although there are technology companies within the Dividend Champions, they aren’t heavily represented. 

If you’re looking for a wide variety of trendy tech plays, you won’t find it in Dividend Champions land.  Instead, you’ll have to move forward with solid, consistent, dividend payers that don’t regularly make MSNBC or Cramer’s Mad Money, but would be worthy of Ben Graham, Warren Buffett, and value-investing Dividend Farmers.

The thoughts and opinions expressed here are those of the author, who is not a financial professional.  Opinions provided should not be considered investment advice.  They are presented for discussion and entertainment purposes only.  For specific investment advice or assistance, please contact a registered investment advisor, licensed broker, or other financial professional.