3 Stocks for Dividend Income

Many investors lost money over the past couple of years, but the endowments at prestigious universities suffered even worse. Investment performance at Harvard and Yale "badly trailed" the results at the average college, as The Wall Street Journal so delicately put it. I'm shocked -- but not because of these endowments' lackluster returns.

With exotic strategies and illiquid investments, Princeton registered a 24% loss in 2009, while Cornell took a 26% hit, and Harvard suffered a 27% drop. Compare those losses to the 18% drop for the median large endowment. Worse yet, many such institutions fund their operating expenses with the capital from endowments like these. If they don't generate capital gains, they may be forced to cut budgets and slash salaries.

So what?
Rather than relying on capital gains to sustain our own budgets, we need to seek additional safety in the power of ever-increasing dividend streams. With such a strategy, you'll never have to float debt in order to avoid whittling down your principal. Princeton only wishes it could say the same.

The companies below provide a dividend yield at least as high as that of the S&P 500 (about 2%), and they've grown their dividends at more than 5% per year over the last half-decade:

Source: Capital IQ, a division of Standard & Poor's. Sustainable dividend growth assumes constant payout ratio.

PS Business Parks offers us a higher dividend yield and a decent growth rate over the past five years, but the future sustainable rate looks just flat. In contrast, Microsoft and Gap provide lower current yields, but their payouts look like they have much greater prospects for future increases. Over the past five years, Gap has shown a very high annual dividend growth rate, and Microsoft has shown steady growth.

These are a handful of the thousands of public companies that can help you secure a third income for life. If you'd like to see which others make the cut, try Income Investor free for the next 30 days.