What is a good mix of stocks in a portfolio? As attractive as they may be, having too many hot stocks could cause portfolio returns to rise and fall irregularly and dividend income could be light.
One way to balance out the desire for growth and income is to choose well-established companies that are market leaders in their industries. You may be giving up some potential for high growth, but you gain more consistent returns.
Investing is like a marathon. You match your speed to your goal and that goal is long-term wealth creation based on business like investment decisions.
For example, the auto industry has gone into decline in Australia, but people are still buying cars and trucks. The biggest nationwide auto retailer, Automotive Holdings Group Ltd (ASX: AHE) is looking to improved car sales in the second half of financial year 2015 due to lower interest rates and fuel costs.
There's always a certain amount of pent-up demand to buy cars, so when market conditions improve that desire comes out. With a yield of 5.1% fully franked, even a small share price gain of 5% would put you up 10% for the year.
Insurance Australia Group Ltd (ASX: IAG), the largest ASX-listed general insurance company, recently expanded its insurance underwriting business and achieved a 17% increase in gross written premium. Dividends look to be stable over the next several years, but what really should attract investors is the whopping 6.4% fully franked yield. That beats all of the big four bank yields.
Lastly, lending and finance companies like FlexiGroup Limited (ASX: FXL) can have recurring income streams in the long term. Consumers can buy goods and furnishings in major retailers through the company's Flexirent vendor financing, interest-free and Visa credit card services. Analysts forecast about an average 8% increase in annual earnings over the next two years, so together with its big 4.9% fully franked yield, investors could possibly achieve returns over 10% annually.
