Sector Concentration Risk
Relying heavily on dividend stocks can lead to sector concentration, increasing exposure to sector-specific risks.
Limited Sector Exposure
Many high-dividend-paying stocks are concentrated in specific sectors such as utilities, REITs, consumer staples, and financials. This concentration can expose investors to sector-specific risks, such as regulatory changes, technological disruptions, or economic cycles affecting those sectors.
- Example: An investor with a heavy allocation to utility stocks may face significant losses if regulatory changes negatively impact the sector’s profitability.