High Yield Income Investing: Dividends you can Bank On

By: Andrew McShane

Boost your portfolio with the right high yield income investments. Plus our best dividend stock ideas for 2021.

You are about to learn...

  • High Yield Income and Dividend Growth Strategy
  • Our 5 Criteria for Great High Yield Income Stocks
  • Our Top Dividend Income Stocks for 2021

Investors love the sight of cash dividend payments hitting their bank account on a regular basis from the stocks they own. To succeed at high yield income investing, you need a good dividend investment strategy that helps you pick the right stocks.

Stocks that grow dividends and consistently pay them to their shareholders have five succinct criteria in common, and we outline them below. We also identified two great stock ideas that could boost your dividend portfolio.

High Yield Income Investing and Dividend Growth

Dividend growth investing allows you to select stocks that pay a secure dividend now, that has a good chance of being increased in the future. Finding the right dividend growth portfolio of stocks will help you get a reasonable return on your hard-earned investment dollars.

Despite the need for the right high yield income investing strategy to build a good dividend portfolio, you would be surprised how many people forgo the “strategy” part of investing and instead simply reach for the highest yielding stocks. This can be a disaster if the dividend payments are not safe and could be reduced in the future.

The interest rates you get from bank certificates of deposit, or high quality corporate and government bonds are very low these days. They are not attractive for most investors. The current yield on a ten-year government bond is less than 1%. A two-year certificate of deposit from a bank is not going to do you much better as they currently yield approximate 1%. 

With our High Yield Passive Investing Service, we use a simple five step criterion to pick the stocks that are included on our model portfolio so that we can be confident in the stocks we select.

The goal of our High Yield Passive Income Investing service is to beat the total return of the S&P 500 index over the long run, by investing in high quality dividend paying stocks.

Consistent Dividend Investing Criteria

The stocks selected will, on average, pay an attractive and secure dividend that will generate some of the total return. But these stocks will represent part ownership in businesses that are successful and still growing, such that the appreciation in their stock prices will also contribute to the total return of the portfolio. 

Here are the criteria that we will use to select our stocks for this service: 

  1. These businesses need to operate in industries that are healthy and growing. 
  2. The businesses selected need to be successful and growing 
  3. There needs to be a long-term track record of paying (and preferably growing) a dividend 
  4. The company needs to be run by a well-respected CEO. 
  5. The balance sheet needs to be healthy, with no more than a reasonable amount of long-term debt. 

For the companies we select using the criteria above, I do not know what the stock prices will do over the short term. But I do know that the way to build real wealth is to pick healthy and growing companies using criteria like we have above and hold those businesses for long periods of time.   

We are not a trading service here. Instead we will look to hold these high yield income investing companies for five plus years and as a result we should be well rewarded vs the total return of the stock market. 

Using the above criteria, I immediately eliminate several industries that are quite popular with many dividend seeking investors for reasons that I will explain below: 

Tobacco – Altria, Philip Morris and British Tobacco, just to name a few are businesses I am avoiding in this service. I see this industry as slowing dying, with the dividends being supported by raising prices on people that are addicted to their products. No thank you. These stocks are extremely popular with many dividend investors and if you want to own them, then that is up to you. I just see too much risk of dividends being cut to include in this service. 

Telecom – Also I am avoiding businesses like ATT & Verizon. Telecom stocks can be very popular with dividend investors. However, many of the balance sheets are highly leveraged with debt, such that the dividend is at risk more than people fully understand. So, while telecom is a better business model than the tobacco industry discussed above, I see too much risk. 

Energy – Here we are talking about businesses such as integrated oil producers Exxon and Chevron on one end and pipeline master limited partnerships on the other end. The yields quoted on these businesses today are very attractive, especially when many of the stock prices have been cut in half with the recent turmoil in the industry. I see the fossil fuel industry as one that is dying a slow death and is un-investable now or in the future. Long ago the fossil fuel companies stopped being a growth industry, now these companies are hanging on by paying investors a high dividend, that in my opinion will be cut eventually for many involved. 

Banks – With interest rates so low and regulation so high for banks, I no longer see the industry as a growth industry. Two significant economic down drafts in the last twelve years have put pressure on the industry, such that they are trying to hang on right now, and not really thinking about growth. With banks so well capitalized right now, I see the dividends paid as relatively safe, but given the lack of real growth prospects, I see better places for our money going forward. 

Business Development Corporations – Here I am talking about Ares Capital, Prospect Capital and Main Street Capital as examples. Each of these businesses loans money to higher risk companies that cannot get traditional lending from banks. Although they pay a nice dividend, I see these businesses as high risk. They certainly are not in a growth industry and the health of the dividends paid is directly tied to the health of the businesses they are lending money to at any given point in time. Too much uncertainty for me to invest here, although I acknowledge that many dividend seekers like these kinds of companies for their high yields. 

The elimination of these industries above from our selection criteria does eliminate many businesses from consideration for inclusion in our portfolio. However, it does still leave a large selection of healthy and growing dividend paying companies.

Below are two example of high yield stocks included in our High Yield Passive Investing Service, along with the reasons why they fit our criterion discussed above:  

Top High Yield Passive Investing Stocks for 2021

High Yield Passive Investing Stock #1 – NextEra Energy 

NextEra Energy is one of the largest publicly traded utility companies with their ownership of two electric companies in the southeast. NextEra Energy is also one of the world’s largest generator of renewable energy from wind and solar. 

Utilities are here to stay and NextEra Energy’s focus on renewable energy is taking advantage of a mega trend that is likely to last for many years given the shift away from fossil fuels. 

This makes NextEra Energy a very profitable and growing company within a very secure and growing industry. 

The business has been led by well-respected CEO James Robo since 2012, who has guided the company through a significant amount of growth. 

NextEra Energy current dividend equates to a yield of approximately 1.9% based on the current stock price. The dividend is easily paid out of current year profits. This 1.9% yield is a bit low for utility businesses, but NextEra Energy tends to increase the dividend payout faster than many other utility companies. The dividend increased each of the last 25 year, which is a good indication that it is likely to continue to increase in the future.  

As a regulated utility, NextEra Energy is well capitalized, with a reasonable mix of funding between long term debt and equity. 

High Yield Passive Investing Stock #2 – United Parcel Service 

United Parcel Service (UPS) is a well-known brand in the global package delivery industry. The shift to consumers buying via ecommerce has been a great tailwind for this industry and UPS is performing quite well because of it. 

The most recent quarterly results saw a 16% increase in revenue, which is fantastic for a business this size.  

UPS pays a dividend that equates to a yield of 2.3% and they have a long history of dividend increases, most recently increasing by 5% in early 2020. 

Most interesting about UPS that makes it worthy of inclusion in our portfolio is the recent naming of Carol Tome as chief executive officer. Ms. Tome is incredibly well respected. She was the chief financial officer at Home Depot where she spent a total of 25 years, so she knows a thing or two about operating large scale businesses. Look for her to build UPS into a powerhouse in the years ahead. 

UPS has a strong balance sheet that will allow it to continue to pay its current dividend as well as fund whatever growth strategies they decide to take on. 


Stocks that pay an attractive and growing dividend, with a low dividend payout ratio, are good for your dividend portfolio.

But you need to be selective when picking a dividend growth stock to assure that the dividend payment is safe. Be sure to use a strong criterion like the one described above to weed out dividend stocks that should be avoided.

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