After blindly chasing the highest yields in the market, I think one the more common traps dividend investors fall into is narrowing their search to one or two sectors. Personally, I've got a weakness for massive consumer goods companies, but I wouldn't be surprised to find a few dividend investors out there who rarely stray far from utilities. Although both sectors have plenty of solid dividend stocks, it's still a good idea to introduce some diversity into your portfolio. Here are five companies to get you started.
The transition stocks
With a brand portfolio that includes names like Band-Aid, Listerine, and Tylenol, I suppose you could call Johnson & Johnson
The past year or so has brought a few missteps for the company in the form of embarrassing recalls, which may worry some investors. However, I'm willing to bet these won't do much harm in the long run. Meanwhile, investors can pick up a 3.5% yield at a reasonable price.
If utilities are more your flavor, then I'd suggest looking at trash-hauling business, which my fellow Fool Robert Eberhard recently called "the new utility." As much as we try to reduce the tons of garbage we create annually, the truth is we'll always need someone to haul it away.
In this industry, it's hard to find a better investment than Waste Management
I also really like that Waste Management is looking ahead to the days when we can no longer simply bury our trash. In addition to being one of the largest recyclers in North America, it invests in green start-ups, and uses converted landfill gas to generate electricity.
While I enjoy holding Yum! Brands
The only downside to Yum! at the moment is that investors have seemed to caught on to the emerging market potential, so the dividend yield is only 1.8%. Still, with a forward P/E of 17, it's not outrageously priced. If you're willing to take a lower yield in return for greater capital gains, the company isn't a bad choice.
While its business model has almost nothing in common with that of Yum!, Intel
The best part of it, though, is the market doesn't seem to have caught on. Intel trades at a forward P/E of just over 10 and pays 3.1% dividend. Add that to its low payout ratio of 33% and the company starts to look like a bargain.
The potential two-bagger
Finally, we have the company that inspired this article, Retail Opportunities Investment Corp.
Although most investors would find ROIC's 4% dividend yield enough to start salivating, the real bonus prize is the potential for significant capital gains. Motley Fool Income Investor advisor James Early has said that shares could be worth as much as $23 each, nearly double today's prices.
I believe any of these stocks would make great additions to any dividend portfolio and have backed up my claims with outperform calls on each of these stocks in CAPS. Moreover, I hold shares of all of these companies except for ROIC -- which I may buy in the near future. If you're interested in even more ideas for diversifying your portfolio, then check out this special report: "Secure Your Future With 11 Rock-Solid Dividend Stocks." The report is free, so click here to download it today.
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