The 3 Stock High-Yield Income Portfolio

| March 7, 2016 | 0 Comments

roll of moneyTo keep things simple, here are three stocks that together should make up the core of a dividend-focused investment portfolio. Their average yield is 5.8%, and the portfolio will generate a growing income with cash flow growth of four to five times the current inflation rate.

I review, research, and recommend (or dissuade, mostly dissuade) a lot of higher yield dividend stocks. I evaluate income stocks based on yield, cash flow to support the current yield (safety), and dividend growth potential. I go over hundreds of earnings reports and conference calls every quarter, and out of all of those reports I have found a small number of stocks that continue to impress quarter after quarter. These are the income stocks that should make up the core of a dividend-focused investment portfolio.

This is a hypothetical exercise. I strongly recommend against owning just three stocks in a portfolio. I use approximately 20 stocks as an adequate number. But, it is also interesting to see what an investor could expect from just a few stocks. Consider the new stock investor who has or wants to put just a few thousand dollars into the market to start. The three stocks here would make a great starter portfolio for the investor who plans to add cash and buy more stocks as money permits. The goal in selecting the following stocks are to pick ones that have a higher degree of share price stability along with my over-riding criteria of dividend safety and dividend growth. Here is my hypothetical three stock income portfolio:

Main Street CapitalMain Street Capital Corporation (NYSE: MAINstands at the head of the class of business development companies (BDCs). A BDC is a tax-advantaged business structure that is required to invest its assets by providing capital to small and mid-sized corporations. Main Street Capital currently has about 200 client companies. The company primarily makes loans to client companies, but will also make small equity investments or take equity options as part of a client funding deal. MAIN share owners receive monthly dividends. Historically, the company has increased the dividend rate twice a year. Main Street has also paid up to two special dividends per year as a payout of equity investment profits. MAIN currently yields 7.7% and investors can look forward to annual dividend growth of about 5%.

EPR PropertiesEPR Properties (NYSE: EPRis a real estate investment trust that is diversified across three niche commercial real estate categories. The company’s three property sectors are Megaplex theater and retail complexes, sports complexes including metro ski parks, water parks and golf entertainment complexes, and private and charter schools. In December, EPR announced that New York State had awarded the company and a gaming company partner a gambling license for idle property that EPR owned not far outside New York City. EPR will immediately start to receive lease payments from the gaming partner and a percentage of winnings when the casino goes operational in a few years. Other acreage on the property will be developed into a golf course and water park. As an investment, EPR also pays monthly dividends and currently yields 6.0%. Historically, the dividend has grown by 6% to 8% per year and I forecast continued payout growth at these levels.

Related: How to earn $4,489.80 in extra income by Tax Day (April 18th).

CyrusOneFor the growth portion of our three stock portfolio, I selected CyrusOne Inc (NASDAQ: CONE). This company is part of the new breed of data center REITs. CyrusOne is the fastest growing company in this fast growth commercial real estate sector. The company just announced a 21% dividend increase for 2016. I project continued 15% to 20% dividend growth for at least the next several years. With a fast growth REIT like CONE, you can expect 20% average share price growth plus the current 3.75% dividend yield.

Let’s summarize this hypothetical three stock portfolio. Average yield is 5.8%. That’s pretty nice in a world where the 10-year Treasury yields 1.7% and blue chip corporate dividend payors average less than 3%. Also, three-quarters of the initial dividend income will come as monthly checks. The dividends from this portfolio should grow by 8% to 10% per year. The portfolio will generate a growing income with cash flow growth of four to five times the current inflation rate.

The danger with a three stock portfolio is that if/when one of them runs into trouble and has to reduce or stop paying dividends. I would not expect that from any of these quality companies, but we all know business operations can change. For a real, meaningful amount of income stock portfolio, you should diversify across at least 15 stocks. The three discussed here are a good start and can give you an idea of what a high-quality income stock should look like.

Finding stable companies that regularly increase their dividends is the strategy Warren Buffett uses himself to produce superior results, no matter if the market moves up or down in the shorter term. The combination of a high yield and regular dividend growth is what has given him consistent gains throughout his decades-long investing career.

And, there are currently over twenty of these stocks to choose from in the Monthly Paycheck Dividend Calendar, an income system used by thousands of dividend investors enjoying a steady stream of cash.

The Monthly Dividend Paycheck Calendar is set up to make sure you receive a minimum of 5 paychecks per month and in some months 8, 9, even 12 paychecks per month from stable, reliable stocks with high yields.

If you join the calendar by Monday, March 7th you will have the opportunity to claim an extra $4,489.80 in dividend payouts by Tax Day (April 18th).

The Calendar tells you when you need to own the stock when to expect your next payout, and how much you can make from stable, low-risk stocks paying upwards of 12%, 13%, even 15% in the case of one of them. I’ve done all the research and hard work; you just have to pick the stocks and how much you want to get paid.

The next critical date is Monday, March 7th (it’s closer than you think!), so you’ll want to take action before that date to make sure you don’t miss out. This time, we’re gearing up for an extra $4,489.80 in payouts by April 18th, but only if you’re on the list before the 7th. Click here to find out more about this unique, easy way of collecting monthly dividends.

Position: Long EPR, CONE, MAIN

 

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Category: Dividend Stocks

About the Author ()

Tim Plaehn is the lead investment research analyst for income and dividend investing at Investors Alley. He is the editor for The Dividend Hunter, an investment advisory delivering income investments with double digit growth in share price and dividend payments, and 30 Day Dividends, a specialty income service that takes advantage of opportunities for relatively fast, attractive profits around potential dividend payouts.

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