Wednesday, May 27, 2015

26 Income Securities For A Well-Rounded Asset Allocation

I am a firm believer that asset allocation plays a significant part in a portfolio's long-term results. In the past, I was asked if you could have a diversified portfolio of dividend stocks and other income securities. It is an interesting question that deserves further examination.

As for my portfolio, I consider asset allocation only when looking at my holdings in total. It would be much too difficult to maintain a good allocation within individual portfolios (income, growth, 401(k), Roth IRA, etc.), while trying to maintain my overall allocation. However, an investor could build a degree of allocation into a portfolio of dividend income securities. Consider the following:

Basic Materials

- MDU Resources Group Inc. (MDU) is involved in electric and natural gas distribution, natural gas storage, gathering and transmission, construction materials and mining, and oil and natural gas production. Yield: 3.4%

- Nucor Corporation (NUE) is the largest minimill steelmaker in the U.S., Nucor has one of the most diverse product lines of any steelmaker in the Americas. Yield: 3.1%

Communication Services

- AT&T Inc. (T) provides telephone and broadband service and holds full ownership of AT&T Mobility (formerly Cingular Wireless) Yield: 5.6%

- Verizon Communications Inc. (VZ) is the largest U.S. wireless carrier, Verizon also offers wireline and broadband services primarily in the northeastern U.S. Yield: 4.4%

Consumer Services Sector

- Genuine Parts Company (GPC) is a leading wholesale distributor of automotive replacement parts, industrial parts and supplies, and office products. Yield: 2.6%

- McDonald's Corporation (MCD) is the largest fast-food restaurant company in the world, with about 35,000 restaurants in 119 countries. Yield: 3.5%

Consumer Services Sector

- Kimberly Clark Corp. (KMB) is a global consumer products company producing tissue, personal care and health care brands include Huggies, Pull-Ups, Kotex, Depend, Kleenex, and Scott. Yield: 3.2%

- The Coca-Cola Company (KO) is the world's largest soft drink company, and also has a sizable fruit juice business. Yield: 3.2%

Energy Sector

- ConocoPhillips Co. (cop) is of the largest independent oil and gas exploration and production (E&P) companies in the world, COP spun off its downstream assets in May 2012. Yield: 4.5%

- Exxon Mobil Corp. (XOM), formed through the merger of Exxon and Mobil in late 1999, is the world's largest publicly owned integrated oil company. Yield: 3.4%

Financial Services Sector

- Aflac Incorporated (AFL) provides supplemental health and life insurance in Japan (78% of pretax operating profits) and the U.S. Products are marketed at work sites and help fill gaps in primary coverage. Yield: 2.4%

- T. Rowe Price Group Inc. (TROW) operates one of the largest no-load mutual fund and life cycle fund complexes in the United States, with December 31 AUM of nearly $747 billion. Yield: 2.5%

Health Care Sector

- Abbott Laboratories (ABT) is a diversified health care products company that is now focused on nutritionals, diagnostics, generic drugs, and medical devices, following the spinoff of its R&D-based prescription pharmaceuticals business. Yield: 2.0%

- Johnson & Johnson (JNJ) is a leader in the pharmaceutical, medical device and consumer products industries. Yield: 3.00%

Industrials Sector

- General Dynamics (GD) is the world's fourth largest military contractor and also one of the world's biggest manufacturers of corporate jets. Yield: 2.0%

- 3M Company (MMM) provides enhanced product functionality in electronics, health care, industrial, consumer, office, telecommunications, safety & security and other markets via coatings, sealants, adhesives, and other chemical additives. Yield: 2.6%

Real Estate Sector

- Health Care Property Investors, Inc. (HCP) is a California based equity-oriented real estate investment trust that has direct or joint venture investments in health care-related facilities across the U.S. Yield: 5.7%

- Realty Income Corporation (O) is an equity real estate investment trust that owns commercial retail real estate properties in the United States. Yield: 5.7%

Technology Sector

- Cisco Systems, Inc. (CSCO) offers a complete line of routers and switching products that connect and manage communications among local and wide area computer networks employing a variety of protocols. Yield: 2.9%

- Microsoft (MSFT), the world's largest software company, develops PC software, including the Windows operating system and the Office application suite. Yield: 2.6%

Utilities Sector

- Consolidated Edison, Inc. (ED) is an electric and gas utility holding company serves parts of New York, New Jersey and Pennsylvania. Yield: 4.2%

- Southern Company (SO) is an Atlanta-based energy holding company and is one of the largest producers of electricity in the U.S. Yield: 4.9%


- Entergy Louisiana LLC (ELJ), 5.25% Series First Mortgage Bonds, due 7/1/2052, Yield: 5.2%

- NextEra Energy, Inc. (NEEpJ), 5.00% Series J Junior Sub Debentures due 1/15/2073, Yield: 5.2%

Preferred Stock

- Vornado Realty Trust (VNOpK), 5.70% Series K Cumulative Redeemable Preferred Shares, Yield: 5.9%

- U.S. Bancorp (USBpO), 5.15% Dep Shares Non-Cumulative Perpetual Preferred Stock Series H, Yield: 5.2%

Needless to say, the above will not provide a perfect allocation, but it goes a long way to provide diversity in a portfolio focused only on income securities. In my personal portfolio, I buy the best available dividend securities and use my other investments to balance my asset allocation.

Full Disclosure: Long T, VZ, GPC, MCD, KMB, KO, COP, XOM, AFL, TROW, JNJ, GD, MMM, HCP, O, CSCO, MSFT, ED, SO, ELJ, NEEpJ, VNOpK, USBpO. See a list of all my dividend growth holdings here.

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