Rounding Out A High-Yield Portfolio With 5 Unconventional Companies

by: Kevin Quon

For investors looking to buy income, the ability to balance out a portfolio of individually picked companies is a task that requires diversification. Being able to spread about risk is a necessary requisite in order to maintain a consistent flow of income in light of changing economic conditions that inevitably will occur. A well rounded dividend portfolio, however, should be able to provide a decent flow of income that will continue to flourish when others fail to do so.

All too often though, investors find themselves specializing or duplicating exposure into specific asset classes as they pursue high yield returns. An investor who has Enbridge Energy (NYSE:EEP) in their portfolio due to the prospect steady oil returns can find themselves with a reliable 6.5% distribution. Yet in their pursuit for high yield, they might also find themselves tempted to add Kinder Morgan Energy Partners (NYSE:KMP) - a fuel pipeline MLP with a 5.6% distribution. In doing so, such an investor may be opening up unnecessary risk should oil find a reason to depreciate rapidly (as was the case when the economy grinded to a halt).

It's ideal therefore to add supplementary income sources that could assist in sheltering the investors regardless of the situation. The following is a short list of a few companies that might be able to provide industry sectors that an investor might have overlooked by investors in their pursuit to optimize income yield. Collectively altogether, these might not offer the most stable portfolio. Yet on an individual basis, many of these companies may help to round out any high-yielding portfolio. All values were taken as of January 12, 2012.

Company Mkt. Cap. Div% (Prior) Div% (Fwd) Industry
Veolia Envrionnement (VE) $5.50 B 16.3% 14.4% Waste Management
THL Credit (NASDAQ:TCRD) $264 M 7.8% 8.6% Private Equity
Terra Nitrogen (NYSE:TNH) $3.35 B 7.9% 8.7% Fertilizer Products
Navios Maritime Partners (NYSE:NMM) $904 M 10.6% 11.3% Dry Bulk Shipping
New York Community Bancorp (NYB) $5.83 B 7.6% 7.7% Banking

Veolia Environnement stands as a high-yielding French Utility and Waste Management play. While its dividend outlook may not be as good as the prior year and its balance sheet looks suspicious with its high debts, the company does retain a considerably high amount of cash on its balance sheet. The fact that the company has been around since 1853 may also suggests they know how to survive. This is also quite impressive given the fact the company thrived despite its location in a country that was ravaged by two world wars.

THL Credit is a small private equity firm and mezzanine debt lender that has received little attention. In times when credit is tough to come by, such firms have proven to endure. In a likely testament to value, management has consistently been buying up shares since April 2010.

Terra Nitrogen is a subsidiary of Terra Industries. Rich in cash, the company carries $7.7/sh for a book value of $12.72/sh. Located in a stable agricultural industry, Terra may serve as an ideal offset for recessionary environments.

Navios Maritime Partners might seem like a bad choice given the volatility seen on the Baltic Dry Index and the unfavorable outlook for the shipping industry. Yet all of the company's vessels are on long term charters at favorable rates when compared to the spot market. Many of these charters aren't even set to expire until 2014 at the earliest. Predictable revenues should allow for the company to expand its dividend in the coming year as analysts expect.

New York Community Bancorp may also seem like a poor choice given the sentiment surrounding the financial sector. Yet despite having a lucrative yield considering its sector's performance, the company has consistently paid its $1 annual dividend throughout the years. They even continued to do so as the world was collapsing in fear during the Great Recession.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.