Earn yields of 9.6%, 13%, and 9.7% from these three stocks that can help you build a consistent income stream well into retirement. All three of these stocks have stable cash flows and long-term businesses built to keep paying you cash dividends no matter what the market does.
Last week, the higher-yield sectors went through what felt like a mini crash. There were some significant share price drops on Thursday. On Friday, a lot of them recovered, but some continued to decline.
Nobody likes to see the prices of their investments go down, but investors must understand that there are times when that will happen. I have developed what I call the “Dividend Hunter Mindset” as a way to avoid losing money in the market when other investors are losing their minds and money.
The core to the Dividend Hunter Mindset is that you invest to build a stable and growing dividend income stream. You know that the market at times moves down as well as up, and those drops are hard to predict.
Investing in quality dividend paying stocks ensures that you will earn the dividend income stream through those periods when share prices are dropping. You need a plan on how to handle declines in the stock market. In my opinion, selling to lose money is not the type of plan I want to employ.
History shows us that if a quality dividend paying company continues to pay those dividends, the share price will recover. The recovery may happen quickly or it may take some time. In the meantime, if you own these types of stocks, you will still earn dividends.
Companies pay dividends based on their business results, revenue, and free cash flow. Companies cannot do anything about their share prices and do not base business decisions, such as paying a dividend, on what the share price is doing.
When every stock in a sector is going down, you can be sure that it’s a general fear based sell-off and not related to individual company results. We only see what is happening to the stocks we own and may not see that almost all stocks in the same business sector are down. I call that the market being stupid.
Each company is different and has its own business model and results. While the market groups stocks and does not look at individual results, we do the opposite. You must strive to understand how the companies you own make money and pay their dividends.
Buy low and sell high will make money, but it is very hard to buy low when prices are falling. The not very funny thing is that share owners usually want to sell when share prices are falling. There are two approaches to buying low. I employ them both at different times.
To average down and improve your yield on a particular stock, buy when the share price falls and don’t worry if it falls further. When you do this, you have already improved your personal portfolio yield and future dividend income stream.
The other approach is to sit tight and wait for the share price to bottom and then start moving up. This is more conservative, but you may miss a “deal” if prices drop sharply and then recover just as quickly. Do what works best for you, but think about the potential income benefit of adding shares to your holdings when prices are down rather than selling and losing principal value and future dividend payments.
Here are a couple stocks that investors are dumping, giving less emotional investors the opportunity to lock in higher yields.
Investors in Hercules Capital Inc. (NYSE:HTGC) are unhappy with the company’s plans to move the management system from internal to an external management company. However, the new managers will be the same old managers and management expenses will not significantly change. HTGC will continue its track record of strong dividend payments to investors. However, now you can buy the stock with a near 10% yield compared to 8% before the recent sell-off.
Uniti Group Inc. (NASDAQ:UNIT) is a high-yield telecom infrastructure assets owning REIT. The company’s business and cash flow to pay the dividend has been very steady since its IPO two years ago. The $0.60 per quarter dividend is backed by a 20-year net lease contract. However, the market has swung the share price between the low $20’s and low $30’s a couple of times in the past two years. If you buy shares at or under $25 you get a $9.4% yield and possible 20% capital gain when the share price again swings to its historic highs.
Ship Finance International Ltd. (NYSE:SFL) is a high-yield stock that has paid a steady and growing dividend. However, the SFL share price has a history of very large swings as the investing public likes or dislikes the stock because of any news item hitting the shipping sector. This is a stock that you buy on the dips, and possibly take profits at the peaks. Currently, it makes sense to add shares when the stock is under $14, and back up the truck if it drops under $13. The peak is above $16 if you like to take profits. SFL currently yields 13%.
Earning consistent monthly income from your dividend stocks is not easy. Many investors spend hours researching what stocks to buy, only to end up more confused than when they started.
There are thousands of stocks to choose from, but only a small percentage of that group are the right stocks for you to own. The best high-yield stocks need to have safe long-term businesses that print money every year no matter what so they can pay you consistent dividends.
That’s a tall task for most companies, and unless you have a degree in finance or worked on Wall Street, picking the best companies to own, out of all of the other ones, is extremely difficuly.