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 past half-decade:

Company

Trailing Dividend Yield

5-Year Average Annual Dividend Growth Rate

FCF Payout Ratio

Sustainable Dividend Growth

NTT DOCOMO (NYSE: DCM)

3.6%

21.1%

27.1%

6.0%

ONEOK Partners (NYSE: OKS)

6.1%

6.7%

470.0%

(3.4%)

Mercury General (NYSE: MCY)

5.9%

8.0%

124.1%

8.3%

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

NTT DOCOMO has increased its dividend at a very fast pace over the past five years, but its sustainable dividend growth rate suggests that it will have to slow that growth in the future, even though its payout ratio sits at reasonable levels.

ONEOK Partners offers a high dividend yield, but its sustainable dividend growth rate isn't that high. Its extremely high payout ratio reflects the massive capital investments the company is making in its business, making free cash flow much lower than reported net income. But even on a net-income basis, ONEOK Partners' payout ratio limits its ability to raise dividends in the future.

Mercury General also pays a high dividend and has given us respectable growth over the past five years, but it's in a better position to grow payouts going forward. Despite a high FCF-based payout ratio, its payout based on earnings is much more attractive, allowing sustainable growth to occur.

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 shares of any of the companies mentioned. ONEOK Partners is a Motley Fool Income Investor recommendation. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.