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:


Trailing Dividend Yield

5-Year Average Annual Dividend Growth Rate

FCF Payout Ratio

Sustainable Dividend Growth

Wal-Mart (NYSE: WMT)





Mobile TeleSystems (NYSE: MBT)





Prospect Capital (Nasdaq: PSEC)





Source: Capital IQ, a division of Standard & Poor's. Sustainable dividend growth assumes constant payout ratio. *Dividend growth rate as of Dec. 31, 2009.

Wal-Mart pays the lowest dividend of the three, but has had a high annual growth rate and does not pay out too high of a portion of its free cash flow in dividend payments. In fact, its dividend is one of the reasons I selected it in our 50 stocks in 50 days promotion.

Mobile TeleSystems pays a high dividend, but has not grown its dividend over the past five years. Also, the fact that Mobile TeleSystems pays out such a large portion of its free cash flow suggests that it will not be able to sustainably grow its dividend in the future.

Prospect Capital has a high dividend yield and has increased its dividend substantially over the past five years, but the fact that it pays out more than 100% of its free cash flow indicates that it may not be able to sustain its current dividend. Of these three, only Wal-Mart looks like it can grow its dividend in the near term.

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.

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. Jim Royal, Ph.D., does not own any of the companies mentioned. The Fool owns shares of Wal-Mart, which is a Motley Fool Inside Value selection. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.