Many investors lost money over the past couple of years, but the endowments at prestigious universities suffered even more. 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 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 past half-decade:
|
Company |
Trailing Dividend Yield |
5-Year Average Annual Dividend Growth Rate |
FCF Payout Ratio |
Sustainable Dividend Growth |
|---|---|---|---|---|
|
GlaxoSmithKline |
4.8% |
8.4% |
42.2% |
10.9% |
|
Analog Devices |
3.0% |
20.7% |
30.7% |
12.7% |
|
Grupo Aeroportuario Del Sureste |
4.3% |
32.2% |
71.0% |
2.6% |
Source: Capital IQ, a division of Standard & Poor's. Sustainable dividend growth assumes constant payout ratio.
GlaxoSmithKline offers a high dividend yield, respectable growth, and the possibility for more growth. Its moderate payout ratio also suggests that increases could be coming.
Analog Devices has grown its dividend by an average of more than 20% a year for the past five years, but its sustainable dividend growth rate indicates that it may have to slow that growth in the future. Still, its payout ratio sits at a moderate level. Grupo Aeroportuario Del Sureste also has a much lower sustainable dividend growth rate than its past growth rate, in part because of the fact that it doesn't have the free cash flow to support higher yields in the future.
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.
