Need Income? Boring High Dividend Stocks Are Your Best Bet (2024)

Co-produced with Treading Softly

When I was a child, one of my favorite times to attend my local church was free hamburger day. The church would send out waves of yellow buses into the local community to pick up children and bring them to church.

Before sending them all home, every child would get a free hamburger. I loved it. They historically would give out Fast Eddie's 5-cent burgers. My taste in burgers has since become more refined, but the happy memories remain to this day.

The church leaders knew something so simple as offering a free hamburger to local kids would bring them in droves. The days of local churches operating large bus operations have largely come to an end as parents are less trusting of sending their kids off on a bus without them.

Today churches and other organizations will try to set up flashy, elaborate events to draw in crowds, but often the simple appeal of free food will work just as well.

Creating Wealth Is Truly Simple

What never ceases to amaze me is how so many try to generate wealth and riches through exciting steps and flashy events. Historical wealth generation to create lasting multi-generational wealth is extremely simple. You make your assets (Static Wealth) generate income (Functional Wealth) that exceeds your expenses and that is reinvested to generate more income. You don't need to be rich to become wealthy. Likewise, you're not instantly wealthy if you're rich.

However, being wealthy can and often does lead to becoming rich. Being rich means you have a high level of net worth or assets. Your Static Wealth is a large numeral. Being Wealthy means your income strongly outpaces your expenses. Your Functional Wealth is the income you and your assets produce. The goal of the rich and wealthy is to have their large asset base, produce a large amount of income so they have the ultimate level of financial independence.

The old adage of "live below your means" continues to ring true. Live below your means, take that extra and reinvest it.

Invest in Boring Equities

Taking the idea of simple or boring to the market means you should invest in likewise simple or boring holdings.

One great example of this is Atlantica Sustainable Infrastructure (AY) which yields 4.7%. Their business model is to buy renewable energy assets with debt and contract the power they produce to pay off the debt and provide excess income. They in turn pay out the income to you. Their assets are self-amortizing, meaning they pay themselves off while making excess income.

Source: AY Q3 Earning Slides

Talk about a simple business model. No wonder AY has seen strong success in the market since Algonquin (AQN) became its sponsor.

On the other side of the coin, investing in boring equities would be like buying the bonds or baby bonds of a stable firm. Antero Midstream (AM) which yields 15% for its common shares, is one such firm. Its 2024 bonds (CUSIP 03690AAC0) offer a 5.9% yield to maturity and extremely high coverage. If AM hits hard times, they could cut their generous common dividend to repay their debt. However, with their common dividend coverage of 1.3x and an interest coverage ratio of 3.05x, I'm not concerned about their bonds not being paid or refinanced. Another great way of generating steady income is through preferred stocks. Preferred stocks are ideal for conservative investors who are purely income oriented and not willing to ride the ups and downs of the markets. For our investors, we are currently recommending a 45% allocation to fixed income, including preferred stocks. Currently, the preferred stock portfolio on our buy list includes 56 issues with an average yield of 7.5%. One of my favorite preferred stock today is the Crestwood Equity Partners Perpetual Preferred Units (CEQP.PR). This is a unique preferred stock issued by Crestwood (CEQP), a midstream company with a focus on natural gas that's currently seeing a boom in demand. The reason that it's unique is because this preferred stock cannot be called, thus allowing investors to lock in a 10.8% yield forever.

The simple and boring investments in stable debt and straight-forward companies allow you to have a stress-free investment and an income stream you can feel comfortable reinvesting the excess income from.

Flashy Often Means Risky

There has been a recent splash of IPOs and SPAC deals to bring new names to the market. These are making some people extremely rich. However, for the average retiree and investor who's investing for income, the flash, dash, and crash of most IPOs produce little real income in the form of dividends and often less in the form of realized gains.

Furthermore, exciting names in the growth stock realm have seen their upward momentum lose steam.

Data by YCharts

The last three months have seen value stocks as a whole power toward more unrealized gains along with dividends. Now, I would be remiss to not say that growth names have outperformed value so far this year. Looking forward, we expect value names - such as REITs, utilities, telecoms, and business development companies - to outperform on a total return basis. This means income investors and retirees can buy value stocks that pay dividends and see both strong income and great unrealized gains. Boring is set to be better and has been better than exciting or flashy-looking forward.

Don't Sell Now

The other side of the coin is worrying that the market has gotten too "frothy" and selling out of all your positions. I get the fear and concern. I really do. I don't share it and here's why. The market is a powerful forward-looking mechanism.

This means that in March, the market was selling over fears about COVID-19 that we saw to some degree in June and July. Likewise, the market is buying now on the future belief of life returning to normal with the vaccine being distributed.

Furthermore, if you bought into steady, boring, and reliable paying positions like the AM bond or AY, you need not worry about their market price if the dividend or interest payments keep flowing. You're not investing with a six-month timeframe, but a multi-generational time frame.

Data by YCharts

The rising and falling of the market that feels so extreme day to day, in reality, smoothes out considerably when you have a long-term perspective. Keeping your cool, staying on plan, and picking your choices wisely will allow you to enjoy the market as it moves.

Buy and Buy Again

The outlook for the market is extremely strong. While I do expect a small dip before year-end it should be short lived. This means that reinvesting your dividends quickly will be important. So buying your positions and having a ready watchlist to capitalize on the newest opportunities will be very important.

Be sure to decide what level you are willing to buy a security for. Don't chase it upwards unless its fundamentals are agreeable to its new price. Personally, I keep updating my watchlist weekly, likewise, I think you should as well. This is why each week we share with members of our community the best preferred stocks, baby bonds, and the best high dividend opportunities so that our investors can keep their income flowing.

One key to successful investing is taking a small sum of money you have now, and seeing it grow and expand by reinvesting as much of its income as possible. This takes a trickle of income and slowly and steadily grows it into a roaring river of income. You need to keep at it, keep investing, and staying on top of your flock of securities.

Want to see wealth in your lifetime? Get used to being bored. Steady, strong, smart paying securities from boring, predictable sources will lead you from a hand to mouth existence to one of wealth over time. Each dollar you put to work earning you more dollars will continue the cycle of growth.

That's income investing. That's historical wealth generation. That's The Income Method. You can do this. Remember, I'll pulling for you.

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