Monday, December 19, 2011


Market Capitalization
            My 2011 Dividend Machine project is just about completed.  You already know that portfolio diversification is very important and that diversification within your dividend income portfolio is also important.   

Diversification can have many faces.   We looked at diversification by industry last week.  I will not go into diversification by domestic versus global investing because we used only domestic companies in the 2011 Dividend Machine.  However, diversification by market capitalization bears some in depth analysis.

Market Capitalization Categories

Market capitalization measures the equity value of the company.   Sometimes smaller companies, as measured by equity, perform better than larger companies.  Just this last Saturday, the Wall Street Journal published an article on the superior stock price performance of small capitalization stocks.

Like all of investing, this year’s story can change quickly.  Over my many years of investing and investment advising, I have seen periods when very large capitalization stocks do better than mid caps and vice versa.  You know what that means?  You should own some of everything.   Diversification by market capitalization will help you to participate when certain kinds of stocks go up and will help to insulate you when certain kinds of stocks underperform.

Some analysts use five or six categories of capitalization.  I use four.  Small cap stocks have a total value of less than $3 billion dollars.  Mid cap stocks have an equity value of between $3 billion and $10 billion dollars.  Large cap stocks have equity values of between $10 billion and $100 billion.  Mega cap stocks exceed $100 billion in equity.

Market Capitalization of 2011 Dividend Machine Portfolio Stocks

My fifty two 2011 Dividend Machines ended up being very well diversified as measured by capitalization.  I want to remind you here that I randomly picked these fifty two stocks, one per week, based on the data available at the time the company was profiled.  I used only the four criteria that you now know very well to define a Dividend Machine.  It is the post picking analysis that will help to guide us in 2012 to continue to refine those companies that deliver reliable and ever increasing income.  It is interesting that this screening process led to a well diversified portfolio.

Small Caps

Thirteen companies were small cap.  They represented just over 20 percent of the total amount invested.   These companies are (UVV, UTMD, NJR, NHI, MSA, ESP, HGIC, MPR, YORW, LDR, MGR, POR, and WHG.)

Mid Caps

Sixteen companies were mid caps.  They represented just over 27 percent of the total amount invested.  These companies are (ATO, CAG, CFR, DRI, GPC, HAS, LEG, MCHP, MOLX, NOC, PBI, RPM, RSG, SCG, SON, and WSO.)

Large Caps

Sixteen companies were large caps.  They represented just over 33 percent of the total amount invested.  These companies are (BCE, DUK, ED, GIS, ITW, KMB, LMT, RTN, SO, SYY, TRI, TRV, TU, XEL, WPZ, and WM.)

Mega Caps

The final group of seven companies is mega caps.  These companies represent almost 19 percent of the total amount invested.  These companies are (ABT, COP, CVX, INTC, JNJ, PG, and T.)

 I have one more analysis to perform which I will do based on the closing prices on Friday, December 23, 2011.   The rest of 2011 will include a break for the holidays, a little vacation time; time to recharge and begin our 2012 Dividend Machine Project in January, 2012. I hope you will continue to follow this project; it has been such fun so far.

Very Truly Yours,