{"id":37276,"date":"2013-04-03T16:00:35","date_gmt":"2013-04-03T20:00:35","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=37276"},"modified":"2013-04-03T16:00:35","modified_gmt":"2013-04-03T20:00:35","slug":"two-simple-rules-to-get-high-income-from-super-safe-investments","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2013\/04\/03\/two-simple-rules-to-get-high-income-from-super-safe-investments\/","title":{"rendered":"Two Simple Rules to Get High Income From Super-Safe Investments"},"content":{"rendered":"

By Jim Nelson<\/strong><\/p>\n

Last week<\/a>, I showed you why you shouldn’t start with high-yielding dividend stocks if you want to build a bulletproof income portfolio.<\/p>\n

High yielders are usually riskier and more volatile than dividend
\nstocks with lower yields. And over the long run, they are proven to
\nunderperform safer, long-term, dividend-growing blue chips.<\/p>\n

But that doesn’t mean you shouldn’t ever have large yields in your portfolio.<\/p>\n

That’s because, by following two simple rules, you can safely<\/span> add higher-yielding stocks to your income portfolio.<\/strong><\/p>\n

Rule No. 1 is to avoid the highest yielders on offer.<\/p>\n

According to a 2006 study by Credit Suisse, some high-yielding stocks
\ndid outperform their lower-yielding counterparts. But the best
\nperformers weren’t the highest yielders.<\/p>\n

Credit Suisse broke down the dividend-paying stocks in the S&P
\n500 into 10 sections (or “deciles”) by their dividend yields — decile 1
\nbeing the lowest-yielding stocks and decile 10 being the
\nhighest-yielding ones.<\/p>\n

Although stocks that had the lowest yields (deciles 1 and 2)
\nunderperformed the S&P 500, higher-yielding ones (deciles 8, 9 and
\n10) outperformed the index by three to five times.<\/p>\n

Take a look at this chart from the study. It shows how the top three
\ndeciles (highest yielders) did, compared with the bottom two (low
\nyielders) and the S&P 500.<\/p>\n

\"Dividend<\/p>\n

Logically, if the lowest-yielding stocks were the worst performers,
\nyou’d think the highest-yielding ones would be the best performers. But that wasn’t the case. <\/strong>The eighth and ninth deciles outperformed the 10th decile (the highest-yielding stocks in the S&P 500).<\/p>\n

The reason for this seeming inconsistency is that companies that pay
\nout too much of their earnings in dividends often can’t afford to do so
\nfor long.<\/p>\n

And this brings us to rule No. 2: Make sure the companies whose shares you buy can afford to keep paying their dividends.<\/p>\n

The best way to do that is to look at something called the dividend payout<\/a>
\nratio. This simply measures the percentage of earnings a company pays
\nout in dividends (yearly dividends per share divided by earnings per
\nshare).<\/p>\n

Too high a payout ratio points to higher risk of a dividend cut down
\nthe road. (It doesn’t take much more than one bad quarter or failed
\nproduct launch for a company to end up without enough income to pay its
\ndividend. So it is forced to cut its payment.)<\/p>\n

Credit Suisse also found that high-yielding stocks with lower payout ratios outperformed high yielders with high payout ratios.<\/p>\n

\"Returns<\/p>\n

In my subscription-based income advisory service, Income & Dividend Report<\/em>, I look for a yield no higher than 10% and a payout ratio between 35% and 70%.<\/p>\n

One play that fits this perfectly is Total SA (NYSE:TOT<\/a>)<\/strong>,
\nthe largest oil and gas company in France. It has operations around the
\nworld. And last year, it had net income of more than 10.7 billion
\neuros.<\/p>\n

TOT yields 6.3%. And its payout ratio sits right at the bottom of our “sweet spot,” at 38%.<\/p>\n

So if you already have built in the kinds of “bedrock” dividend
\npayers I told you about last week… and are looking to add some
\nhigher-yielding dividend stocks<\/a>… Total is a great first choice.<\/p>\n

Sincerely,<\/p>\n

Jim<\/p>\n

\n
\n

Disclaimer<\/span><\/span><\/span><\/h3>\n
\n

Article brought to you by Inside Investing Daily. Republish
\nwithout charge. Required: Author attribution, links back to original
\ncontent or www.insideinvestingdaily.com<\/a>. Any investment contains risk. Please see our disclaimer<\/a>.<\/em><\/p>\n

 <\/p>\n<\/div>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

By Jim Nelson Last week, I showed you why you shouldn’t start with high-yielding dividend stocks if you want to build a bulletproof income portfolio. High yielders are usually riskier and more volatile than dividend stocks with lower yields. And over the long run, they are proven to underperform safer, long-term, dividend-growing blue chips. But … <\/p>\n

Continue reading “Two Simple Rules to Get High Income From Super-Safe Investments”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-37276","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/37276","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/comments?post=37276"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/37276\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/media?parent=37276"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/categories?post=37276"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/tags?post=37276"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}