This is the first installment in a multi-part series that looks at various options used by income investors to boost their yield while waiting for dividend growth to lift their portfolio’s overall yield-on-cost. This week we are looking at Utilities – those investments long considered as a safe harbor for “orphans and widows.”

I am a firm believer that asset allocation plays a significant part in a portfolio’s long-term results. Recently, I received a question asking if you could have a diversified portfolio of dividend stocks. It is an interesting question that deserves further examination.

Over the last couple of years we have seen companies fail to raise their dividend, cut their dividend and some even decided to stop paying their dividend. In some cases their financials did not warrant the change. So, how do you fin companies with a positive dividend culture?

I couldn’t begin to estimate how many different stocks are traded around the world. There are many participants, but few players. Though the population of stocks may be large, there are only a precious few that are worthy dividend stocks.

When people learn that I am an income investor, the reaction is often a desire to discuss high-yield investments. The uninitiated commonly confuse income investing with high-yield investing. The two are not the same.

What makes investing in dividend stocks so intriguing is the power of compound dividends. Compound interest is what occurs when interest earned is added to the principle and is considered when calculating future interest–i.e. earning interest on interest. Compound dividends are like compound interest, but much better.

Dividend stocks. When you hear those two words what do you think of? Many people think of widows and orphans, along with their stereotypical investment in utility stocks. While others may think of maximizing income by finding the highest yielding stocks available like Real Estate Investment Trusts.