One of the easiest ways we can help protect our investments and avoid extreme volatility in share returns is to practice good diversification. Some might think that having a lot of stocks, even from a variety of industries, can also save you from losses. They chant the age-old saying: "Don't put all of your eggs into one basket."
Warren Buffett, probably one of the most successful investors in the world, has a different take on the idea. Although he would agree diversification to a certain degree is beneficial, having a large number of stocks is only for protecting yourself from your ignorance about what you are actually investing in. He said we should put all of our eggs in one basket… and watch that basket very closely.
Your top five or ten investment ideas are probably going to outperform your next ten ideas. Get to know those stocks very well and truly gain in both returns and your own knowledge and experience. Having too many stocks in your portfolio can even dilute your overall returns with mediocre performance.
Here are three high-yield companies that have grown their full-year dividends over an average 5% annually in the past five years.
Insurance Australia Group Limited (ASX: IAG) is one of the leading general insurance providers, although you might know it better by brands such as NRMA Insurance, CGU and SGIO. It's buying the general insurance business of Wesfarmers Ltd (ASX: WES), making its market share even bigger.
Offering a gigantic 6.2% dividend yield now, the company has also raised its dividend payment from 10 cents a share to 36 cps since 2009, as earnings recovered after the GFC.
Coca-Cola Amatil Ltd (ASX: CCL), the bottler and distributor of Coca-Cola and other beverages in Australia, has maintained an upward dividend payment trend since 2004. Long-term shareholders have seen dividends double over that time, which was wonderful for portfolio income.
It offers a very handsome 5.4% dividend yield partially franked. Investors can take advantage of the lower share prices now as it is commencing a business restructure to drive sales and rein in costs.
Westpac Banking Corporation (ASX: WBC) has gained in share price strongly over the past two years, similar to the other big banks. Currently it offers a 5.3% yield fully franked, which is higher than even Commonwealth Bank of Australia (ASX: CBA) or Australia and New Zealand Banking Group Ltd (ASX: ANZ).
Annual dividends have risen at a steady pace in the past five years. Every investor's portfolio should have some banking stocks for stable income returns and I believe Westpac should be at the top of that list.
