The classic book A Random Walk Down Wall Street was published in 1973.  It argued that all available information is reflected in stock prices, making it nearly impossible for investors to consistently beat the market.  Indeed, most active funds have underperformed the indexes due to their higher  management fees.

According to The Wall Street Journal, only 13 percent of U.S. large-cap funds have outperformed over the past decade.  Yikes.  No wonder money continues to flow into low-cost index funds even as analysts claim, “it’s a stock picker’s market.”

It’s easy to make a case for holding a diversified low-cost index fund portfolio.  That said, I still buy individual stocks.  The stocks are there to increase the total portfolio income.

While a strong stock market has pushed portfolio values higher, the advance has also compressed dividend yields.  The yield on the S&P 500 of just over one percent is near its all-time low.  That’s well below money market rates and is a challenge for retirees that prefer the comfort of living off the income from their portfolios.

Fortunately, there are great low-cost dividend-paying ETFs.  The Vanguard Dividend Appreciation (VIG) yields 1.4 percent and Schwab Dividend Equity (SCHD) yields 3.1 percent.  In addition to these core holdings, I selectively add individual stocks to boost the overall portfolio yield.  Here are my favorites:

Within the healthcare sector, many of my clients hold Pfizer (yielding 5.9 percent) and Amgen (yielding 2.3 percent).  Within the business development company space, Ares Capital (ARCC) yields 9.6 percent.  Finally, I heavily overweight the energy sector.  Williams Cos. (WMB) yields 2.8 percent, ExxonMobil (XOM) yields 2.5 percent, and Oneok (OKE) yields 4.5 percent.

In addition to common equities, I’ll own some preferred stocks.  The one I’ve listed here many times dating back to 2018 is Annaly Capital Management 6.95% Fixed/Float ‘F’ (NLY.F).  It continues to trade near its $25 par value and yields 8.9 percent.  For new accounts, I am purchasing the Series G issue.

Outperforming the broader market has turned into a game of overweighting or underweighting the technology sector, which comprises roughly 40 percent of the S&P 500.  That’s a difficult game to play and most aren’t succeeding.  But that doesn’t mean individual stock selection has no place to play in a portfolio.  Purchasing individual stocks remains an excellent method for increasing overall portfolio yield.

— David Vomund is an Incline Village-based fee-only money manager.  Information is found at www.VomundInvestments.com or by calling 775-832-8555.  Clients hold the positions mentioned in this article.  Past performance does not guarantee future results.  Consult your financial advisor before purchasing any security.