I’ve been a big believer in piling money into the best dividend stocks, then staying there for a long time. Perhaps because the start of my career coincided with the nasty 2000-02 bear market, I’ve always taken the view that capital gains can be ephemeral. But a regular dividend represents realized profit I could hang my hat on.
Or so I thought.
I learned a nasty lesson back in 2008, and it’s one I’ll never forget. I was invested fairly heavily in the iShares Select Dividend ETF (NYSEARCA:DVY) and feeling smug about it. Sure, the market could take a tumble, but my high-dividend stocks would weather the storm better than most, right?
Wrong. During the 2008 meltdown, DVY actually lost more than the S&P 500 despite, in theory, being a “safe” dividend-focused fund.
So, what happened?
It came down to diversification, or rather the lack of it. DVY allocated to the highest-yielding dividend stocks that met its criteria … which meant it was massively overweighted to the financial sector. You can imagine how that worked out for me.
Today, we’re going to approach dividend investing a little differently, picking a solid dividend stock from each of the S&P 500’s 10 industrial sectors. And while 10 stocks isn’t what I’d consider a fully diversified portfolio, this will give you a good head start.