The Key to Building a Diversified Income Portfolio of Stocks

One of my most successful side income streams has been investing in dividend stocks. Building a solid portfolio of dividend growth stocks will help provide me with a solid source of income for many years to come.

While I am still in the allocation phase of buying stocks for this portfolio, I have started to see some very positive results. Just this month I hit a milestone by earning over $100 in dividend income!

Building a dividend income portfolio does not require a lot of my time, but there is still work to be done. For example, each month I take a look at my overall holdings in the portfolio to see where I can make some minor tweaks. One of the things I look for are ways to stay diversified in my portfolio.

At the time of this writing, I owned 18 different stocks from 8 sectors. After reviewing my holdings this past month, I am going to make a few changes to try and stay diversified in my holdings.

In Case You Missed IT – Here are 3 changes I made last month to the Money Sprout Index.

Here are the most recent changes I plan to make this month –

1 – Reduce Monthly Investments in Consumer Staples

Stocks from the Consumer Staples sector currently account for 19.7% of my overall portfolio. While I always believe that both Consumer Staples and Consumer Discretionary stocks will be over weighted in my dividend income portfolio, I think there are some cheaper buys right now.

Action Steps

  1. Stop Clorox Corp (CLX) Monthly Investments – Clorox currently accounts for 9.8% of my overall portfolio, which is a bit too high for 18 total stocks. I am going to temporarily halt my $50 monthly automatic investment for now.
  2. Lower Coca-Cola (KO) Monthly Investments – Even though I just started investing in KO through LOYAL3, I think there are more attractive buys in the market at this time. As a result, I am going to lower my $50 monthly investment to $25 for now.

Note – I am going to keep my Wal-Mart (WMT) $50 monthly investment through LOYAL3 for now. It seems to be a better value at this time than Coca-Cola.

2 – Stop Monthly Investment in the Industrial Sector

Stocks from the Industrial sector currently make up over 20% of the Money Sprout Index. Lockheed Martin (LMT), one of my industrial stocks, is currently my largest holding accounting for over 15% of my portfolio.

I have been investing in LMT stock every month through their direct stock purchase plan (administered by Computershare) for the past two years. In that time, I have built up a solid position and have seen the stock price double.

In order to add more diversification to my portfolio, I am halting any future automated investments into this stock for now.

3 – Increase Investments in the Energy Sector

The funds that were originally going into CLX and LMT will be used to invest in the Energy sector. I will be bumping up my monthly investments into Exxon Mobil Corp (XOM) to try and accelerate my holdings in the Energy sector.

There are several energy companies that seem to be attractively valued at this point including – Chevron Corp (CVX), ConocoPhillips (COP), and ExxonMobil Corp (XOM). It just seems like a good time to work at building up my allocation in the Energy Sector – which currently accounts for only 7.0% of my portfolio.

4 – Increase Investments in the Information & Technology Sector

I plan to continue increasing my holdings in the Information & Technology (IT) sector. While not known for having a lot of dividend paying stocks, there are a few IT companies that I am targeting.

Starting this month, I plan to increase my monthly investments into both Intel Corp. (INTC) and Microsoft Corp (MSFT). I currently invest in both of these companies every month through my LOYAL3 trading account. For as little as $10 a month, I can buy stocks in both of these great companies with no brokerage fees or commissions.

My goal is to increase my monthly contributions to both of these IT stocks (similar to XOM) to help diversify my portfolio.

Final Thoughts

The changes that I am making to future investments will help me move towards a more diversified portfolio. The Money Sprout Index will likely always be a little over weighted in the Consumer Staples and Industrial sectors. However, I would still like to increase my exposure to other sectors when it makes sense.

What sectors or stocks are you investing in? What steps are you taking to better diversify your dividend income portfolio?

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