It is not unusual after I publish a list of stocks to get a comment or two asking why those stocks and not these stocks. Often the real thrust of the question is why buy those low yield stocks when you can buy these high yield stocks. The answer involves
risk and its management.
When I started investing in dividend stocks for income, I did as most new income investors – I chased yield. To make things worse, I had success early on. At one time I had a portfolio consisting of Real Estate Investment Trusts (REITs), Master Limited Partnerships (MLPs) and high yield, high risk stocks. The portfolio's yield was consistently in the low to mid-teens. I remember once being disappointed in buying a stock that only yielded 8%.
As I continued to read and learn about investing in dividend stocks, it became apparent that I was doing it the wrong way. I started to unwind my high-yield strategy and move into more traditional dividend stocks. However, the high-yield strategy was still experiencing some success so I did not move as fast as I should and ultimately suffered some unnecessary losses.
My portfolio still carries some remnants of my high yield investing days with stocks such as:
- Integrys Energy Group Inc. (TEG) – Yield: 7.62% – Div. Growth: 1.5%
- National Retail Properties (NNN) – Yield: 6.75% – Div. Growth: 1.4%
- Realty Income Corp. (O) – Yield: 6.33% – Div. Growth: 2.1%
- Health Care Property Investors, Inc. (HCP) – Yield: 6.12% – Div. Growth: 1.1%
None of the above stocks are currently on my buy list, mainly due to their underlying fundamentals. I suspect over time they will work their way out of my portfolio.
The focus of my income portfolio is now on blue chip dividend stocks with a long record of growing their dividends. Examples of companies I now follow include:
- Johnson & Johnson (JNJ) – Yield: 3.18% – Div.
