A High Yield Portfolio? Only If You Meet These 3 Criteria

I’ve been fighting for many, many… many years. It has been an epic fight that started the day I switched my portfolio toward dividend paying stocks. When I started blogging about dividend growth investing, I was reminded several times by older investors that many of my picks didn’t mean anything to them. After all, who needs Disney (DIS) or Canadian National Railway (CNR.TO) with such low yield when you can buy Kinder Morgan (KMI) and Cominar (CUF.UN.TO). All right, I’m writing  two names in bad faith since both companies are known for their high yield and massive dividend cuts in the past.

That is my point all along; how could you hope for a safe portfolio with high yielding stocks? There are no free lunches in finance. If a yield is over 5%, it means there are additional risks attached to this company. Over the past 10 years, we have seen incredibly low rates across all investment products. Therefore, when you pick a stock paying a 6-7% yield, it seems too good to be true…and it is usually is.

As the same time, I totally understand the point of many older investors. They are retired or about to retire and wish to use their portfolio to generate income. If someone spent his entire life saving money aside, the last thing he wants to do is to take money away from his capital. Therefore, the perfect retirement portfolio would generate enough income he would not have to sell shares of any stocks to live.

Retire with a 4%+ yield portfolio? Yes if…

With this idea in mind, I decided to do extended research. I wanted to see if I could pick companies with a higher yield that would still meet some basic investment criteria. I’ve been asked many times by DSR members to create a “revenue portfolio”. I was reluctant to create one since I see lots of risks in investing in higher yielding stocks. After lots of research, I realized it was possible to build a solid portfolio with a higher yield. There is a thin line where you sacrifice potential growth for a higher yield without compromising your retirement. It’s not easy, but you can do it. Here are some rules I will use to build a “revenue portfolio”.

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Disclosure:I hold shares of ENB.TO

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