The best way to invest your money is to focus on the best opportunities out there. The more experience I get with dividend investing, the more I realize that current yield should not be the most important factor in selecting investments. It should not even be in the top five reasons to select an investment. It is number six in my list of entry criteria.
Investors who salivate over the high yields without understanding whether the business can grow revenues and earnings to pay for the dividend are committing a sin against their asset base. However, I am somewhat impacted by the four percent rule, in that I do believe that a portfolio that yields anywhere between three to four percent is the optimal solution in today’s market environment. I do own stocks whose yield is 1% such as Visa (NYSE:V), as well as stocks whose yield is 6% such as Omega Healthcare (NYSE:OHI). I just purchased the ones that made sense at the time.
In my portfolio, I screen the lists of dividend champions and dividend achievers every week, looking for attractively valued stocks to purchase or to research. I keep an open eye for attractively valued companies with room to grow distributions out of growing cash flow and earnings.
After analyzing companies, I only invest in those ones where I can see earnings and dividend growth for the next two – three decades. For example, I expect that Coca-Cola (NYSE:KO) would still be a company with recognizable brands that will be selling a product that customers desire and are willing to pay for.
Other companies that will be around over the next 20 -30 years include energy infrastructure plays such as Kinder Morgan (NYSE:KMP) and Enterprise Product Partners (NYSE:EPD). These companies create the infrastructure to store and transmit oil and natural gas across the US.
Full Disclosure: Long V, OHI, KO, KMP, EPD