Many investors lost money over the past few 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 with the 18% drop for the median large endowment. Worse yet, many such institutions fund their operating expenses with the capital from endowments such as these. If they don't generate capital gains, they may be forced to cut budgets and slash salaries.
So what?
Rather than rely 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 following companies 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.
| Company | Trailing Dividend Yield | 5-Year Average Annual Dividend Growth Rate | FCF Payout Ratio | Sustainable Dividend Growth |
|---|---|---|---|---|
|
Eli Lilly |
5.6% | 5.6% | 36.3% | 23.8% |
|
Owens & Minor Inc. |
2.4% | 15.5% | 22.6% | 9.8% |
|
Diageo |
3.1% | 5.2% | 47.5% | 20.2% |
|
Greenhill |
2.2% | 35.1% | 20.7% | (1.5%) |
|
FirstEnergy |
5.9% | 5.7% | 68.4% | 1.9% |
Source: Capital IQ, a division of Standard & Poor's. Sustainable dividend growth assumes constant payout ratio.
Eli Lilly provides a high dividend and has put up a respectable growth rate over the past five years. Its sustainable dividend growth rate also suggests that it will be able to continue growing its dividend in the future. Owens & Minor and Greenhill have had pretty high dividend growth rates over the past five years, but their sustainable growth rates suggest that they may have to slow or even reverse that growth in the future. Diageo has also given us good dividend growth over the past five years, and its sustainable growth rate suggests that it will be able to continue its dividend growth in the future. FirstEnergy’s plump yield is attractive, but its low sustainable growth rate suggests that the payout will have to slow from its rapid pace in the past half-decade.
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 others that make the cut, try Income Investor free for the next 30 days.
