For dividend investing, there’s a fair bit of “tradition” that goes along with the portfolio style.
Historically, most of us are drawn to a variety of commonplace sectors. After all, industries like consumer staples and utilities typically have inelastic demands and, therefore, their firms have very predictable cash flows. You’re still going to buy shampoo and keep the lights on even during a recession. And that allows these traditional sectors to pay out a steady stream of dividends.
But there can be plenty of dividend royalty thinking outside the box as well.
Investors who go against the grain and look beyond the more traditional sectors when hunting for dividends could bear some serious fruit. Is owning billboards, cemetery plots, and even timberland a bit strange? Yes. But it could mean tremendous income opportunities for your portfolio.
Looking Outside the Box
It’s easy to understand how dividend investors get pigeon-holed into particular sectors and industries. The real point of dividend investing comes down to making sure that yield keeps going far into the future. So it’s natural to gravitate toward many sectors that have steady and sure-fire cash flows/profits. In spite of everything, you can’t pay a dividend, let alone a higher yielding one, without steady profits. Utilities, consumer staples and healthcare names often feature all of these attributes. And with that, stocks like Johnson & Johnson (JNJ ) or Duke Energy (DUK ) are often found in many dividend investors portfolios.