I hold lots of stocks in my portfolio. That approach allows me to make small bets on dozens of exciting companies. However, while I typically like to keep my position sizes small, I do make some exceptions. I tend to invest a much bigger portion of my portfolio in stocks that pay above-average dividends. These stocks anchor my portfolio by providing me with a steady income stream that I can use to buy more growth stocks.
Currently, my three top anchor stocks are Kinder Morgan (KMI -0.43%), Brookfield Property Partners (BPY), and Brookfield Infrastructure Partners (BIP 3.50%). Here's why I've poured so much money into these dividend-paying stocks.
Kinder Morgan: 2.4% of my invested capital
Kinder Morgan is one of the largest energy infrastructure companies in North America. It's the continent's largest transporter of natural gas, refined products, and carbon dioxide as well as the top independent storage terminal operator. What I like about those assets is that they generate predictable income backed primarily by long-term, fee-based contracts.
Kinder Morgan currently sends about half of the cash flow it produces back to shareholders via a dividend that yields 4.9%. That gives me money to invest in growth stocks.
Meanwhile, the company reinvests the other half into expanding its energy infrastructure portfolio so that it can grow its cash flow. That should enable it to keep increasing its dividend (it plans to boost it by another 25% next year). Add in a strengthening balance sheet, and Kinder Morgan is a low-risk energy company that makes an excellent portfolio anchor.
Brookfield Property Partners: 2.1% of my invested capital
Brookfield Property Partners is a large diversified global real estate company. It owns and operates portfolios in the office, retail, multifamily, industrial, hospitality, triple net lease, self-storage, student housing, and manufactured housing segments of the property market. In other words, it's a one-stop shop for investors seeking broad exposure to the real estate sector.
Another reason why I've invested such a large portion of my portfolio into the company is to collect the lucrative cash distributions it pays. Brookfield Property's current yield is a well-above-average 6.6%.
The company expects that it can continue growing that payout in the coming years, aiming to increase it at a 5% to 8% yearly pace through at least 2022. Driving that view is the company's investments to build new office and multifamily properties around the world as well as generate more income from its existing assets by raising rents. That steady income growth will allow me to make even more bets on exciting companies in the coming years. That's why Brookfield will remain an anchor in my portfolio.
Brookfield Infrastructure Partners: 1.7% of my invested capital
Brookfield Infrastructure is a sibling company to Brookfield Property, though as the name implies, it invests in infrastructure businesses. The company currently focuses on assets that facilitate the movement and storage of energy, water, freight, people, and data.
Those businesses produce relatively steady income, which gives Brookfield the cash to pay an above-average dividend that yields 4.2%. Brookfield expects to increase that payout by a 5% to 9% annual rate in the coming years. Powering that forecast is the company's ability to build and buy new infrastructure assets. It's currently in the midst of a major reshuffle of its portfolio by selling less-attractive businesses and reinvesting the cash into more exciting ones. This strategy will provide both a near-term earnings boost while also enhancing its long-term growth prospects. Brookfield Infrastructure's income and its enticing upside potential is why it will remain an anchor in my portfolio for many years to come.
The epitome of buy and hold
I've held shares of these three companies for several years, adding to each position over time. I plan to keep buying more shares in the coming years because they all pay well-supported and growing dividends. Those steadily rising payouts should give these stocks the fuel to outperform the market while also giving me more money to invest in companies with even bigger upside potential. That's why I expect that they'll continue anchoring my portfolio for many more years.