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 Avg. Annual Dividend Growth Rate

FCF Payout Ratio

Sustainable Dividend Growth

Canon (NYSE: CAJ)

2.6%

11.1%

24.6%

4.5%

Xilinx (Nasdaq: XLNX)

2.2%

21.7%

45.3%

20.6%

Harsco (NYSE: HSC)

2.9%

6.4%

29.6%

2.2%

Colgate-Palmolive (NYSE: CL)

2.6%

12.8%

33.2%

44.9%

Republic Services (NYSE: RSG)

2.7%

18.2%

58.9%

1.4%


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

Canon, Harsco, and Republic Services all have high annual dividend growth rates, but their sustainable dividend growth rates are all less than 5%, suggesting that they've come close to their peak payout potential. Xilinx still offers us substantial dividend growth possibilities in the future. Colgate-Palmolive has offered us high dividend growth over the past five years, and its sustainable dividend growth rate suggests that it may be able to increase its growth even more in the future.

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.

Jim Royal, Ph.D., does not own shares of any of the companies mentioned. Republic Services is a Motley Fool Income Investor pick. Motley Fool Alpha has opened a short position on Xilinx, which is a Motley Fool Big Short short-sale recommendation. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.