"Dividends have historically served as a primary source of return for equity holders. Equity allocations can provide a meaningful source of income, leading to a spectrum of equity income strategies. However, many of these income strategies suffer from a single-minded focus on generating the highest yield, without necessarily looking at the consequences of portfolio concentrations at the security or sector levels. We examine concentration in three popular, dividend-focused indexes, the Dow Jones U.S. Dividend Select Index (Dividend Select), the S&P® High Yield Dividend Aristocrats Index (High Yield Aristocrats) and the NASDAQ U.S. Dividend Achievers Select Index (Achievers Select). While we use only three indexes as examples, we believe similar observations can be made regarding concentration in many of the active equity income strategies."
https://www.parametricportfolio.com/insights-research/paper/concentration-concerns-in-equity-income-solutions
Each of the dividend indexes counts on a single sector to generate roughly 30% of the portfolio’s overall income: Utilities (Dividend Select), Financials (High Yield Aristocrats) or Consumer Staples (Achievers Select). Sector income concentration exposes the investor to sector-specific forces, which may dramatically hinder the abilities of sector members to continue paying their current dividend stream. This is an especially pronounced risk in the highly regulated Utilities and Financial sectors.
