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 Avg. Annual Dividend Growth Rate

FCF Payout Ratio

Sustainable Dividend Growth






Paychex (Nasdaq: PAYX)





National Health Investors (NYSE: NHI)





Source: Capital IQ, a division of Standard & Poor's. Sustainable dividend growth assumes constant payout ratio. NM = not meaningful; Vale's free cash flow is negative.

Vale's massive investments in capital expenditures have turned its free cash flow negative (and so its payout ratio), even though the resource giant consistently reports billions in net income. Still, Vale has offered a respectable dividend growth rate over the past five years and has an even higher sustainable dividend growth rate -- a calculation determined using net income -- for the future.

Paychex has shown us a lot of dividend growth over the last half-decade, but its sustainable rate suggests that dividend growth will have to slow substantially in the near future. Its large payout ratio supports that conclusion.

National Health Investors pays a high dividend. But it has a low sustainable dividend growth rate and pays out a high portion of its free cash flow in dividend payments, both suggesting that dividend growth will slow.

These are three 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 Motley Fool Income Investor free for the next 30 days.