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From 2010 to 2020, S&P 500 dividend stocks yielded around 1.6%-2.2% , yet in the same period, investors who relied only on dividends often ended up overconcentrated in sectors like utilities, telecom, and consumer staples. In 2020, when energy companies slashed payouts, global dividend payments fell by $220 billion in a single year.
That’s the problem with relying on dividends alone: they look stable – until they aren’t. True income durability comes not from one stream, but from multiple.
Why Dividends Alone Are Dangerous
- Sector Concentration: Dividend investors often end up with high exposure to just a few slow-growth sectors (utilities, staples, energy).
- Payout Risk: In 2020, a large chunk of global companies cut or suspended dividends, showing that income tied to a single source can collapse in a crisis.
- Yield Trap: High dividend yields (>6%) often signal financial stress – historically, these stocks underperform broad markets over 5 – 10 years.
Protecting wealth and reducing concentration risk is always a dominant theme in what we do – and it extends beyond the returns attributed to income. Trefis works with Empirical Asset Management – a Boston area wealth manager – whose asset allocation strategies yielded positive returns during the 2008-09 period when the S&P lost more than 40%. Empirical has incorporated the Trefis HQ Portfolio in this asset allocation framework to provide clients better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.
The Case for Multi-Source Income
A resilient income portfolio blends multiple asset classes, each contributing differently:
Yield vs. Risk
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How It Works in Practice
Example: A $1M portfolio allocated across these five income sources.
- $300K Dividend Stocks (3% yield) → $9K annual
- $250K Bonds (5% yield) → $12.5K annual
- $200K Real Assets (5% yield) → $10K annual
- $150K Covered Call Strategies (7% yield) → $10.5K annual
- $100K Private Credit (9% yield) → $9K annual
Total Income: About $51K annually (5.1% yield) – with diversification across economic cycles.
Multi-source income portfolios create redundancy, resilience, and reliability. For clients, that’s the difference between hoping for income and knowing it will arrive.
We take a macro-conscious approach to asset allocation even within equities – adjusting exposure across sectors and styles in the High Quality Portfolio.