Income investing is my favorite way to interact with the stock market. I enjoy finding great high-yield products at a discount. When I buy these securities on sale, my dividend yield (income) increases.
However, most people will not become income investors. The average person will invest in low-fee index funds, leading to massive gains but low income.
A savvy investor may start a dividend growth investing portfolio that contains blue chips companies. By dollar-cost-averaging over a long period, along with the power of compounding, DGI portfolios grow into excellent income generation tools.
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The Magic of High-Yield Blue Chip Stocks. The magic of high-yield blue-chip stocks is that you can use them in all three types of portfolios. They belong anywhere you invest your money.
Today, I want to explore high-yield blue-chip stocks to increase your income and lower your risk. I’ll also explain how to use them effectively in each portfolio. Let’s begin.
What are high-yield blue-chip stocks? I consider high-yield blue-chip stocks as mainstream companies that yield over 5%. Not all of these companies are on the Dow Jones Industrial Average (DIA) or S&P 500 (SPY); however, they are large, well-known companies.
The main takeaway is that you can find these blue-chippers on any investing platform. Many apps only offer big-name companies for retail investors to spend their money on—leaving them starving for yield.
Two of my favorite apps, STASH and Cash App, offer minimal investing options for high-yield shoppers like me. Bigger brokerage houses, like Wells Fargo and Charles Schwab, give me all the yield I can find.
I can invest in preferred shares, over-the-counter stocks, closed-end funds, and special bond funds on these bigger platforms. However, STASH and Cash App make it super simple to invest my cash in a fun way, so I like to use these more often.
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Enter high-yield blue-chip stocks. When I am hurting for yield on STASH and Cash App, I can turn to my high-yield blue-chip stocks. I consider STASH to be my “purest” dividend growth portfolio.
Every week, I dollar-cost-average into 15-20 stocks. However, my dividend yield is somewhere between 2-3%. With inflation set to reach 10%, I now need to increase my yield.
Thus, I can start adding more high-yield blue-chip stocks into my portfolio. Companies like Ares Capital (ARCC, 8%), Annaly Capital (NLY, 12%), and Altria (MO, 8%) are great ways to keep your DGI portfolio growing while increasing yield.
The disadvantages of high-yield products. Nothing in life comes for free, so neither does high-yield investing. Each high-yield product has its own personality that you need to understand.
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You cannot just throw your money into NLY and expect the price to increase while also getting a high yield. NLY’s prices fluctuate with interest rates that the Federal Reserve sets. Therefore, you should expect to see your investments go up and down throughout the year.
For the most part, DGI is simple. You find reliable, profitable blue-chip companies that pay dividends and invest in them over a long time. Companies like McDonald’s (MCD), Starbucks (SBUX), and Procter & Gamble (PG) come to mind.
However, if you ultimately want to live off the income they produce, you will need to invest a lot of money. Pure DGI stocks will yield between 2-3%, sometimes much less.
Stocks like Apple (APPL) and Microsoft (MFST) pay between 0.5% and 1.5%—hardly a living wage. Combining these stocks with Verizon (VZ) and AT&T (T) can increase your income by a mile.
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What are your goals? It all comes down to your goals. Do you want to live off of the income from your DGI portfolio or income portfolio? Do you want to add yield to your DGI or growth to your income portfolio? Blue-chip stocks can solve both of these issues.
Index fund investing. If you are investing purely in index funds, I assume you want to sell them in the future for income. As we see in 2020 and 2022, the stock market can be extremely fickle. Can you imagine selling your index funds during times of market unrest?
By adding some high-yield blue-chip stocks, you can get your dividend yield from 1-2% to 3-4%, making it much more livable.
You can even add high-yield growth stocks like ARCC, a blue-chip business development company. ARCC may grow 1-2% a year while yielding 7-8% in dividends. Not too shabby.
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Since index funds are almost all growth, you can combine them with low-growth stocks like AT&T (T), which offer massive dividends. AT&T’s share price may remain flat, but you can live off the dividends while your index funds continue to grow.
Dividend growth investing. A safe, solid DGI portfolio will yield 2-3%. You’ll get a fair amount of growth, along with some nice income. However, it’ll take millions of dollars to get a livable wage from your DGI portfolio.
Assuming a 3% yield, you need $2.3 million to produce $70,000/year of dividend income. Therefore, you need to create an additional wealth generator to feed your DGI portfolio.
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However, if you can get your yield up to 5%, you’ll only need $1.4 million for the same amount of income. Adding stocks like Iron Mountain (IRM, 5%) and Exxon Mobil (XOM, 6%) can juice your yields.
If you truly study the market consistently, you can find these stocks at great deals over the years. I bought XOM during the 2020 oil crisis, and it has rewarded me handsomely ever since.
Income Investing. You would invest in high-yield blue-chip stocks in your income portfolio to add some growth to your portfolio. Most of the closed-end funds and preferred shares I invest in offer little growth. I buy them at a discount, but they offer limited upside potential.
Adding stocks like IRM, XOM, ARCC, and ORCC can give me some growth inside my portfolio. Yes, they will lower my overall dividend yield, but having a little bit of growth is good.
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Income investing is all about studying the market and predicting trends. You don’t have to be an expert to understand oil and real estate will increase in the long term. Adding high-yield blue-chip stocks when the market beats them down is excellent for your yield and growth.
The Sin stocks. Today, the market is placing a heavy focus on Environmental, Social, and Governance stocks, or ESG stocks. Please do your research if you go down this route because you may be limiting your potential gains.
There is a general dislike for sin stocks like tobacco and gambling. I invest heavily in tobacco stocks. In fact, they offer four of my favorite stocks of all time. These include Altria (MO, 8%), Phillip Morris (PM, 5%), VGR (VGR, 7%), and British American Tobacco (BTI, 8%).
You can almost always catch these stocks on a discount because of the media basis. I have done well with these stocks and love getting my dividends from these companies.
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However you choose to invest, please do your due diligence and form your own opinions. And frankly, you don’t have to tell anyone your investing habits anyways.
Conclusion. High-yield blue-chip stocks make a great addition to any type of investment portfolio. Again, nothing comes for free. Ensure you understand the risks of each stock in which you invest.
Investing purely for yield will lead to disaster. However, understanding commodities, interest rates, real estate, tobacco, and energy issues can lead to massive gains across these sectors.
If you plan to live off of dividends, then high-yield blue-chip stocks can add the additional layer of income you need to live a comfortable life throughout retirement. Good luck!
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing
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