Building a Diversified 3 Stock Portfolio With High-Yield All-Stars

Diversification, High-Yield Investing, The Fed

We’re living in a low-rate world. Get used to it.

At the start of the year, the Federal Reserve had plans to raise interest rates a few times. Well, you can forget about that.

Over the past few months, the Fed has made it clear that it’s shelved any rate hike plans. In fact, some on Wall Street think the Fed’s next move will actually be a rate cut. The futures market certainly thinks so.

The yield curve has even become partially inverted. That means that short-term rates are higher than long-term rates. Over the last four decades, an inverted yield curve has preceded a recession. The 10-year yield has plunged more than 1% since last November. It may soon fall below 2%.

There are ways to protect your portfolio. Here are three dividend all-stars that are currently fetching generous yields. There are stocks with above-average dividends, and long histories of consecutive dividend increases. In other words, these are dividend stocks that are proven growers.

Let’s start with Helmerich & Payne (HP). The drilling company currently pays a quarterly dividend of 71 cents per share, and I think it will soon go up. I have to confess that that isn’t a very bold forecast.

Why? Because Helmerich & Payne has increased its dividend every year for the last 46 years running. Sure, there’s a chance that HP could forego a dividend hike, but even so, the stock currently yields nearly 5%. That’s the equivalent of more than 1,200 Dow points.

By any measure, the shares are going for a low valuation. The problem, of course, is that energy prices are down, and if HP’s customers are hurting, they’ll feel some pain as well. But I’ll point out that HP is doing much better than it was a few years ago. They’re still the leader in the industry, with a strong market share.

What I like about HP is that everyone else is down on them. That’s often a good sign for the contrarian investor.

I’ll give you an example. A few weeks ago, HP reported quarterly earnings that were 40% better than what Wall Street had been expecting. In fact, this was the second quarter in a row that HP clobbered the Street by more than 40%.

HP is a beaten-down blue chip that has a great dividend and a long history of growth.

Our next dividend all-star is People’s United Financial (PBCT). Never heard of them? Don’t worry. You’re not alone. In fact, the bank probably prefers it that way. This Connecticut-based bank has quietly delivered profits and earnings growth for 180 years. PBCT is currently the 46th-largest bank in the country. The bank has about 400 branches, and it mostly serves New England.

PBCT currently pays a quarterly dividend of 17.75 cents per share. That works out to 71 cents for the year. At the latest prices, that gives People’s United a dividend yield of 4.1%. That’s about double the 10-year Treasury. It’s also better than the large majority of stocks in the S&P 500.

I particularly like that the bank has steadily raised its dividend for the last 26 years in a row. The shares are going for a bargain. Right now, PBCT is even trading for less than its book value (meaning its accounting value). There’s no guarantee that PBCT will rally from here, but going by its 180-year history, I think the odds are quite good. People’s United Financial is a long-term winner with a solid dividend.

Lastly, we have 3M (MMM). Or as it used to known, Minnesota Mining and Manufacturing. Blue chips don’t get much bluer than 3M. The company is a lot more than Post-It Notes. Last year, 3M had revenues of more than $30 billion. The company is a Dow component, and it has 90,000 employees in countries all over the world.

There’s something else it has—an amazing dividend streak. 3M has raised its dividend every year for 60 years in a row. That dates back to the Eisenhower administration.

This is a good time to give 3M a close look because the shares got shellacked after its last earnings report. The stock dropped more than 13% after the industrial giant badly missed earnings. That was its biggest fall in more than 30 years.

Honestly, I’m not too worried about 3M. This is one of the largest and most innovative companies in the world.

3M currently pays out a quarterly dividend of $1.44 per share, or $5.76 per share for the year. That currently works out to a dividend yield of 3.6%.

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