Learn How to Boost Your Dividend Income — in 5 Minutes

On this day in history, financial panic was spreading — and fast.

From October 6-10, the S&P 500 fell more than 20%. By the bottom of March 2009, the index had lost about 50% of its value, heralding a bear market and the worst economic downturn since the Great Depression.

And today? Valuations are high, but we’re enjoying sustained economic growth and the bull market is approaching its ninth year. Since March 2009, the S&P 500 has generated a total return of about 230%.

Here’s the lesson: Don’t buy stocks that you’d probably sell in a panic. Methodically build a portfolio that you’d want to hold through good times and bad. Accordingly, if you’re an income investor frustrated with slowing dividend growth, keep your sense of perspective and follow my all-weather advice below.

I’ll only take five minutes (or thereabouts) of your time.

Turbocharge your income…

Not to spook you further, but this month also marks 30 years since the stock market crash on October 19, 1987.

Nothing as bad as 1987 or 2008 appears to be in the cards right now, but you must contend with the prospect of an imminent market correction. These lofty valuations simply aren’t sustainable.

On Thursday, the S&P 500 shot higher for an eighth straight day, its longest winning streak since July 2013. For most of this year, the major indices have racked up one record after another. It’s been a mixed bag for dividend stocks, though. As the fourth quarter gets underway, dividend investors are looking back on a frustrating year.

But you don’t have to accept paltry dividends. I’ll show you proven ways to rev-up your income portfolio for the rest of 2017 and beyond.

Traditional income havens such as real estate investment trusts (REITs), master limited partnerships (MLPs), and utilities haven’t kept pace with the S&P 500 this year, with MLPs significantly down.

The year-to-date total returns of the following benchmark exchange-traded funds (ETFs) tell the story: the SPDR Dow Jones REIT ETF (RWR) is up 1.4%; the Alerian MLP ETF (AMLP) is down 6.0%; the Utilities Select Sector SPDR ETF (XLU) is up 11.7%; and the SPDR S&P 500 ETF (SPY) is up 13.9%.

Utilities have held up fairly well, but REITs and MLPs also are staples of retirement portfolios and the flagging performances of these two sectors have income investors scratching their heads. The bad news for yield-hungry retirees is that dividend growth as a whole will continue to slow and rising rates pose a risk to utilities.

Even though corporate earnings growth has picked up in recent quarters, the days of double-digit dividend growth are over. In 2016, the S&P 500’s dividends increased only 5%.

But in the words of billionaire super investor Warren Buffett: “The rearview mirror is always clearer than the windshield.” Don’t dwell on where the market has been; focus on where it’s going.

As the Federal Reserve becomes more hawkish, many income investors are rotating from stocks into bonds. However, the financial press lavishes too much attention on the educated fools who sit behind desks in the Marriner S. Eccles Federal Reserve Board Building. Rather than obsess about Federal Reserve policy, focus instead on the underlying fundamentals of your investment choices.

With interest rates and inflation both still hovering at historically low levels, quality dividend-paying stocks have a lot to offer. You shouldn’t pare back your dividend holdings. Unlike bonds, stocks offer potential dividend growth and share-price appreciation. Moreover, rising interest rates will hurt bonds the worst, as more attractive fixed income opportunities emerge.

Think outside the box…

The key is to pick the right dividend stocks or funds. But it’s a common mistake to solely focus on the obvious choices, such as REITs, MLPs, and utilities. Think outside the dividend box. One often overlooked income-generating sector is technology.

That’s right, technology.

Two of the largest technology exchange-traded funds, the Technology Select Sector SPDR ETF (XLK) and the iShares U.S. Technology ETF (IYW) have posted year-to-date returns of 23.6% and 25.5%, respectively.

Tech stocks are booming largely because of increased IT spending among corporate clients, confident consumers who are gobbling up the latest gadgets, and the prospect of lower taxes.

Conservative income investors tend to shy away from the technology sector, because they perceive it as too risky and volatile. However, the quickening pace of innovation is driving earnings growth and cash flow in the tech sector, prompting many Silicon Valley giants to offer not only capital appreciation but healthy dividends as well.

If you want to retire comfortably, you need to build a multi-faceted portfolio that not only includes classic dividend payers (e.g. REITs, MLPs and utilities), but also stocks from other less obvious sectors that bestow dividend growth and the potential for capital appreciation. Contrary to popular misconception, the technology sector fits the bill on all counts.

When looking for dividend stocks, it’s tempting to gravitate towards securities with the highest yields. This is not always the smartest strategy; there’s more to a worthwhile dividend stock than just a high yield. Also keep in mind, the highest yielding stocks are generally expensive, because income investors have used them as bond substitutes in this era of low rates.

Stocks that can generate steady and sustainable dividend growth, rather than the fattest yields, are better bets for dividend investors.

Sure, robust dividends are offered by well-known companies with solid balance sheets. But income investors often lose sight of the fact that high dividends also can be used by new or inherently weak companies as bait for investors.

Ouch! Beware the dividend trap…

A “dividend trap” is when investors hungry for yield are suckered into a high dividend yield, only to eventually discover that the underlying company is deeply troubled. That’s when the dividend gets cut or eliminated and unsuspecting investors get hurt.

Always look for healthy payout ratios, plenty of cash on hand, and a history of earnings growth. These quality dividend payers demonstrate greater resilience during an environment of rising rates and market volatility.

The so-called “Dividend Aristocrats” always provide fertile ground for income investors.  To earn the honorific Dividend Aristocrat, a company must typically have raised dividends for at least 25 years. More precisely, the company needs to have a managed dividend policy that increased its dividend every year for those 25 years.

These dividend powerhouses constitute the S&P 500 High Yield Dividend Aristocrat Index, an official index of the 50-plus highest dividend yielding stocks in the S&P Composite 1500. This Aristocrat Index is maintained by Standard & Poor’s, which every December updates the list of companies that make the grade.

By its very nature, a Dividend Aristocrat tends to be a large and stable blue-chip company with a strong balance sheet. Many of these companies are familiar names that produce household brands. Because of their strong balance sheets and financial wherewithal, they tend to weather market ups and downs.

Case-in-point: In 2008, the Dividend Aristocrat Index fell 22%, whereas the S&P 500 fell 38%.

Also consider financial stocks. As interest rates rise, banks enjoy better net interest margins, a gauge of their profitability as lenders. In addition, banks already are seeing a loosening of regulations and oversight under the pro-business Trump administration. With looser capital requirements, many banks are hiking their dividends.

Rising rates also benefit insurance companies that have invested their huge cash hoards in fixed-income, allowing them to boost their dividends as well.

Dividend growth investors should focus on buying and holding high quality businesses for the long run. Think of time as the currency of your investment life. And with that, my five minutes (more or less) are up.