This is one question that almost all long term investors ask themselves. Most of the well known value investors that we read about in public domain, usually, are concentrated in teens. If that’s the case, then what about diversification? The concept of risk is very subjective because every person will have a different risk profile. These well known value investors have proficiency to balance risk vs. returns. They have resources to be able to manage that risk of concentration. As individual investors, we do not have such resources at our disposal, and hence risk level changes for us. In addition, we cannot generalize that a fixed “number of stocks” provides diversification.
Being a dividend investors, I am looking for companies that have potential to grow their dividends over time. I have observed that companies that grow their dividends, with good quality of earnings, the market value (or share price) also grows. This not only provides dividend cash flow, but also the capital appreciation over time. continue reading rest of the article….
As dividend investors, while it is important to focus on dividends, it is also equally important to monitor the risk of capital erosion over a period of time. Dividend growth and intermediate sustainability is good, but it is less likely to be a substitute for significant loss of capital. Pfizer and GE are examples of capital erosion. These two companies were not only able to sustain their dividends but kept with their growth in last decade. However, the value of individual’s holding kept eroding over the last decade or so. For example:
One the benefit that dividend investors have is lower tax percentage (i.e. 15%) on qualified dividends. In case of lower tax brackets, the qualified dividends are not even subject to taxes. In 2003, President Bush signed into law the Jobs and Growth Tax Relief Reconciliation Act. One of provision in this law was to reduced the tax rates on certain dividends (known as qualified dividends) to 15% for the highest income earners. Furthermore, this provision are to expire at the end of 2010 if Congress fails to renew or modify. So far, it has not been extended. 
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