Every few months I like to take a look at my portfolio holdings and examine my overall sector allocations to see if they meet my comfort level as to how my capital is distributed. As we all know, market forces affect certain sectors at different times throughout business cycles which can often throw many portfolio balances out of sync. In the last year or so we have witnessed the halving of crude oil prices as it knocked down all energy related companies and as a result it seemed every dividend income investor was buying an oil major, oil driller or oil services company. With attractive valuations and higher yields being offered many dividend growth portfolios began to skew heavily towards energy related stocks. Too often I read among the other dividend blogs how heavily skewed their portfolio weights are towards energy. More recently, we have seen the cyclical industrial names take a severe beating as Caterpillar Inc. (CAT), Emerson Electric Co. (EMR) and all rails like Union Pacific Corporation (UNP), Norfolk Southern Corporation (NSC) and the like join in the rout. Sure, it’s hard to ignore the much better price, value and yield these dividend stalwarts are offering but one has to be aware that their portfolios do not become too heavily weighted in one or two sectors. Of course, this is a very personal matter as investing is very individualistic as we each have our own investment and risk tolerances which is evident in our slightly different portfolio holdings.
This is why it’s vital to assess your holdings from time to time, if nothing else, to simply decide if your allocations are meeting your needs and comfort level. After all I’m a big proponent of ‘sleeping well at night’ which is why I perform these informal audits of my portfolio holdings. I like to do this every few months or so as my own buying biases have no doubt affected my sector allocations. After all, most of you already know that in about one year I went from having zero exposure to Canadian banks to a “significant” exposure to the sector as I have been slowly adding to my The Toronto-Dominion Bank (TD), The Bank of Nova Scotia (BNS) and Royal Bank of Canada (RY).
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