Investors pursuing a dividend portfolio approach will often rightfully add energy trusts, utility shares and real estate investment trusts (REITs) to their holdings. And although such investments help contribute the desired income component, they should be considered in the context of the overall portfolio rather than on a stand alone basis. An appropriate dividend-paying portfolio not only consists of high yielding stocks, but must also be diversified across numerous economic sectors.

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"Neutral" Yields
Frontier Communications Corporation
(NYSE:FTR) and Windstream Corporation (NASDAQ:WIN) yield 12.9% and 9.44% respectively. Although both of these corporations are in the telecommunications field, they have slightly different types of operations. Windstream offers internet and digital television services while Frontier focuses on voice, video and data services to businesses and residential clients. Piper Jaffray gave both of them a neutral rating.

Lucky Number Seven
Cigarette companies typically pay high dividends to their shareholders, and Altria Group Inc (NYSE:MO) currently yields 7.0%. According to Reuters, seven analysts rank MO as a buy, two as outperform, and four give it a hold status. Although Altria is subject to litigation risk, it has been a solid performing stock with continued upward momentum in it favor.

Pepco Holdings (NYSE:POM), also yields 7.0%. The diversified energy firm provides numerous essential services such as wholesale electric power, providing approximately 2 million people with electricity. Similar to Altria Group, which has a beta of 0.39, Pepco is a low risk investment, carrying a beta of only 0.58. Although it trades with a P/E multiple significantly higher than the industry average, 15.12 compared to 5.99, this is justified based on its superior return on investment and return on equity.

Other Opportunities
In addition to REITs, which, as previously mentioned, provide large dividends to their investors, HCP (NYSE:HCP) has a high yield of 6.20%. Similar to the operations of REITs, HCP provides financing and invests in healthcare-related properties such as professional medical buildings, hospitals and medical labs. Seventy-eight percent of the shares are held by institutional traders and mutual funds, and a large portion is held by insiders.

Spectra Energy, (NYSE:SE) has a dividend yield of 5.1%. Although this stock is an "accidental high yielder", meaning that its larger yield is due to the recent fall in share price, analysts at RBC Capital Markets and Wells Fargo, recently upgraded their view on Spectra to outperform. With a mean target price of $24.71, $5 higher than its current share price, investors are likely to either enjoy a continued high dividend yield or experience stock price appreciation.

Further portfolio diversification can be attained through Regal Entertainment Group (NYSE:RGC). This developer of multi-screen theaters currently yields 5.3% and currently trades slightly above its 52-week low. With a gross margin of 44% and an asset turnover of 1.14, Regal is more profitable and efficient than other firms in the industry.

Bottom Line

When optimizing your high dividend portfolio, focus on the numerous aspects of portfolio theory such as diversification. (For more stock analysis, take a look at 4 Stocks That Insiders Are Buying)

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