Today’s zero-interest-rate environment poses a difficult challenge to investors who need income from their portfolios. Many investments once used for safe, reliable income no longer provide significant yield. Bonds and bank products have miniscule yields and simply will not meet the needs of income-hungry investors.
However, as investors have increasingly turned to the stock market, I see many of them making a huge mistake: They overload their portfolios with traditional income groups like utilities and drug stocks, concentrating themselves in just two or three sectors and lacking any sufficient diversification.
Don’t do that.
It’s important to mix up your income holdings and find stocks in non-related businesses. Having a portfolio of all utilities works … until we get an industry-specific problem, and then they could all decline. Your portfolio needs a mix of sectors to be truly diversified.
Fortunately, we can use our Portfolio Grader tool to find stocks that will help you add some new flavors while still cashing sizable dividend checks.
Geo Group (NYSE:GEO) is a company with unique characteristics and is not subject to traditional economic concerns. GEO provides services to governments on an outsource basis, including prison management, immigration detention centers and residential treatment facilities. It operates 100 facilities worldwide with more than 73,000 inmate beds.
In January, the company converted to a real estate investment trust status and thus pays out 90% of its operating income to investors. At today’s prices, Geo Group yields 5.2% — plus, it has strong dividend growth potential because the prison business (sadly) is a growth business. Best of all, Geo Group’s strong fundamentals are reflected in its Portfolio Grader ranking, getting a “B” for fundamentals, and its overall “A” ranking means GEO is a “strong buy.”
You also can take advantage of other investors’ search for income. AllianceBernstein (NYSE:AB) provides investment management services to institutional and individual investors, and money is pouring in as confused investors look for assistance. Analysts have misjudged the demand for investment management services, and AllianceBernstein has posted three solid positive earnings surprises. As a result, AB has been scrambling to raise estimates for both the next quarter and the full year.
Meanwhile, AllianceBernstein’s stock has improved to an “A” grade, or “strong buy,” from Portfolio Grader. AB’s potential for strong appreciation and its 6%-plus dividend makes this a very attractive opportunity.
In this market environment, it pays to think outside the box — be it for big yield, or big growth, or even just stability. And that occasionally means looking past the same group of 30 or 40 stocks many individual investors tend to gravitate toward.
Louis Navellier is the editor of Blue Chip Growth.