My aim is to own no more than 40 holdings between my aggressive and conservative high-yield portfolios. This strategy gives me no less than 2.5% exposure to any given asset, assuming I’ve invested 100%. However, the stocks below represent alternative options for portfolio diversification.
This premier utility operates in the Mid-Atlantic region with very steady revenue and profit growth, thanks to better demand for power than in other regions. I might be inclined to swap Dominion (NYSE:D) for another utility company depending on how fourth-quarter earnings stack up — the company missed Q4 estimates by -9.40%, apparently due to warm weather. Despite this, Dominion is getting very interesting and attractive. Yield: 4.2%.
A major provider of power to New York, New Jersey and Pennsylvania, Consolidated Edison (NYSE:ED) is the most conservative utility within that sector. It’s almost a proxy for a corporate bond when traders speak of it. Charts from ED show a very constructive stair-step pattern, with the shares trading in a sideways formation during the past several months. The stock is in a nice uptrend now, but I’m holding out for some higher-yielding picks if we get more good economic news. But if the economy starts to fade again, ED will be my a go-to pick. Yield: 4.1%.
This best-of-breed food company missed earnings estimates by 3 cents in the last quarter, tempering its uptrend. The stock is coming in to test its 200-day moving average. Given the company’s sound reputation, the stock didn’t give much back. But again, I’m on the hunt for higher dividend yields if the economy is starting to pick up speed. General Mills (NYSE:GIS) stays on my watch list in case the economy stalls out on the heels of a European recession. Yield: 3.1%.
This stock is getting right in the spot where a buy recommendation might be warranted soon. With the rotation out of some defensive sectors under way, the stock has pulled back about 10%. I’m highly inclined to add BristolMyers Squibb (NYSE:BMY) to my conservative portfolio. It currently has a dividend yield of 4.2% — but may get to 5%. Until then, I’ll wait.
Duff & Phelps Utility & Corporate Bond Trust
I didn’t expect the bond market to rally alongside the stock market this month, but that has been the story, and shares of Duff & Phelps Utility & Corporate Bond Trust (NYSE:DUC) reached to new 52-week high. Once again, I would expect yields to rise a tad with a stronger economy, but apparently there’s a consistently strong appetite for this kind of high-quality yield that’s trading at a premium now — and I don’t want to pay for it. Yield: 4%.
Flaherty & Crumrine Preferred Income Fund
Preferred stocks trade much like bonds: They are construed to be fixed-income assets, just junior to corporate bonds and convertible debt when a company is servicing debt payments. Flaherty & Crumrine Preferred Income Fund (NYSE:PFD) is still trading at a very steep 23.89% premium to net asset value and is outside my risk profile for an asset that doesn’t yield at least 10%. Yield: 7.3%.
Two Harbors Investment
There’s talk of new government intervention to ease the burden of refinancing more home loans. That would carry the possible risk of massive pre-payment of higher interest rate loans, in turn pinching the already tight spread with which these mortgage REITS are grappling. Also, competitor American Capital Agency (NASDAQ:AGNC) just trimmed its dividend as a result of the narrow spread of borrowing short and investing long. I’ve been seeing that caution flag raised for weeks. If Two Harbors (NYSE:TWO) maintains its current dividend payout, I may get back in. Yield: 16.2%.