As many of you know I am all about High Yield stocks. I love the Dividend Income Investing philosophy which is finding great stocks paying higher than normal yields. But did you know you can apply this philosophy to the Dividend stalwarts commonly call the “The Dividend Aristocrats” or “The Dividend Champions” among many other creative names.
These Aristocrats or Champion stocks are Large Cap stocks that have a long history of paying and / or raising dividends usually for periods exceeding 25 years. Here’s the thing though, occasionally even these stocks find themselves “Out of Favor” for one reason or another. When they do this presents the perfect opportunity for Dividend Income Investors to pick them up at bargain prices and of course as we all know when a stocks price falls its yield increases. So as a result we may be able to find these stocks that normally pay a yield of 4% at maybe 5.5%. This increase in the yield of one and a half percent can have a huge impact on our returns over a number of years.
How do I play this? Well some of my riskier stocks I do not DRIP the Dividends but let them accumulate into cash. Its this accumulation of cash in my portfolios that I hold back looking for bargains and opportunities. We never know when they will present themselves but when I see one of these “Blue Chip” stocks at bargain prices I add it to my portfolio and use them to build a solid foundation for my portfolio. In this manner I am always adding to the stability of my portfolios without compromising on the High Income I demand.
The point I am trying to convey is that as Dividend Income Investors we don’t have to give up on the more traditional Stocks in order to achieve high yield and high income. Yes, we can have our cake and eat it too!
So what would I consider to be great “Foundation Stocks”? The list is too large to publish here but you might want to consider some of these:
Proctor & Gamble (PG), AT&T (T), Verizon (VZ), 3-M (MMM), Coca Cola (KO), Pepsi Cola (PEP), Doctor Pepper Snapple (DPS), Pfizer (PFE), General Electric (GE), Johnson and Johnson (JNJ), Honeywell (HON), Altria (MO), Phillip Morris (PM), Duke Energy (DUK), Southern Company (SO), Realty Income (O), Boeing (BA), …………………….. I think you get the point !
Once you get your foundation of best of breed quality stocks established then you can start building on it. This when you have to build a little knowledge and slowly venture into the riskier, but more rewarding stocks that will produce higher income for you. One of my favorite places to look for quality higher yielding stocks is the CCC List or David Fish’s Champions, Contenders and Challenger list (Read : 113 Dividend Increases Expected ) which list dozens of stocks that have raised their dividends for 5 years in a row or more, many for more than 25 years in a row. While it doesn’t guarantee the safety of a stock it is sure a good indication they are serious about maintaining their dividend payout.
So get started, lay that foundation of quality stocks and prepare to start building on it.
What do you think? Do you have a similar philosophy you would like to share? Please comment below.