As many of my long-time readers know, I generally like to have my portfolio holdings equally split among three types of dividend stocks: High-Yield Opportunities, Fast Dividend Growers, and Steady Income Generators. (I talked in more detail about these three types in a recent issue of Dividend Opportunities.)
The critical discovery I've made over the past five years is that by using the right combination of dividend stocks, you can you create a retirement portfolio that maximizes income, maximizes growth and minimizes risk.
This is exactly what my Daily Paycheck Retirement Strategy is all about. It's how I've been able to collect nearly $1,400 per month in dividends over the past year, and how my real-money portfolio has grown from $200,000 to over $310,000 in less than five years.
As I said, the strategy uses three types of dividend stocks. But to maximize income, my Daily Paycheck Strategy dedicates nearly a third of its portfolio to high-yield dividend stocks.
I doubt I need to tell you the primary benefit of this elite category. High-yielding securities are defined by their generous income payouts. This makes them particularly attractive for anyone looking for a large income stream in retirement.
But you need to be selective. When it comes to high yielders, the biggest isn't necessarily the best. Instead, you want to find something in what I call the "high-yield sweet spot," a segment of dividend-paying stocks that consistently performs well over the long haul.
Professor Kenneth French, world renowned for his financial research, painstakingly ranked the performance of all U.S. stocks from 1927 through 2013 according to yield.
He discovered that there's a special group of high-yielders that outperformed all others, returning an average of 14% per year.
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This "sweet spot" isn't made up of the absolute highest yielders -- for instance, those with 18% yields and up. According to Dr. French's findings, some of the best high yielders are those that pay above-average yields -- but not so high that they can't afford to keep paying them.
That's the "sweet spot"... and that's the group I focus on.
So in the high-yield section of my Daily Paycheck portfolio, the yields start at 7% and go up from there. They average a 9.3% yield overall, but also include a couple of double-digit gems.
Let me show you an example from my portfolio that illustrates what I look for in a high-yielder.
The Gabelli Multimedia Trust (NYSE: GGT) is a closed-end fund that has traded on the NYSE under the ticker symbol GGT since 1994.