A Factor Every Dividend Investor Should Take Into Account

My self and many others focus on portfolio allocation to reduce risk. For us that dividend plays an important role in our investment strategy, there is another diversification aspect to take into account, namely how big part of the passive income each holding in the portfolio accounts for.

Why then is it important to keep track of how much each company contributes to the dividend income? The short answer is to reduce risk.
Whether one, like most of us, reinvest acquired dividends or rely on them cover living cost, the size of passive dividend income is key. If a company that accounts for a large portion of the passive income gets into trouble and reduces the dividends this has an impact on our ability to reinvest in new companies or to cover our daily expenses.

Below, I have compiled by how many percentages each stock contributes to our total passive dividend income.

When looking at the picture, it becomes clear that there are mainly five companies that stand out - Bonheur, Industrivärden, Mekonomen, BHP Billiton and Fortum. Together they represent about 63% of my total passive income from dividends on a annual basis. A dividend cut from any of these four companies would have a pretty big impact on the size of the passive income.

One of my goals is to diversify the dividend stream so that I'm not as reliant on individual stocks and I'm confident that as time passes the dividend stream will become more diversified.
For those who are interested, you can find my passive income distribution as well as the size of our passive income from dividends in the main menu item: Passive Income.

Have a nice day!