Investors shouldn't have to choose between high-yields and capital appreciation. Here are some stocks that could line your portfolio with juicy dividends plus growth potential. (Full Story Below)

This week's email brought the following question from a reader:

"My sister and I both own stock in Verizon. She says I should cash it in, my mom said don't ever sell. Is my mom right? Thanks."

My first instinct was to say that mom is always right. I know my mom is. On the other hand, the actuarial tables tell us the writer (a woman) will probably have to spend more years with sis in the years ahead than mom. If she cares about both sis and mom, it appears to be a tough choice ... perhaps impossible.

But then I turn to my yardsticks, my rules of investing, and I do find some guidance. First, it's not about being right. It's about putting your money where it's most likely to do what you want it to do. If she wants it to stay absolutely safe, so she can put a down payment on a vacation home in three months, the best choice is a CD.

If she wants it to double in five years, the best choice is a diversified portfolio of growth stocks, and there are numerous Cabot newsletters that provide advice on that.

But the reader, you'll note, doesn't tell me her goals, so I'm left to infer that she wants her money to grow slowly with low risk. And Verizon (VZ) is not the best choice for growth. In fact, Verizon's earnings peaked in 2001. Its landline telephone business (45% of revenues) is shrinking, and competition on the wireless side is cutthroat.

On the other hand, Verizon does pay a dividend, which brings in 5.9% a year, and I'm betting that's one of the big things mom likes about the stock. Another might be that dad worked for the company!

But ignoring mom (again), I ask, is Verizon your best choice in a best dividend-paying investment? And the answer, of course, is no.

Certainly Verizon is well known. Many of us write checks to the company every month. But given the revolutionary changes sweeping the world of communications, Verizon has some serious challenges ahead... and they are well known by institutional investors, who have been reducing their investments in Verizon for years.

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Four years ago, the stock was owned by 860 mutual funds; now the number is 662. The trend is clear.

So where do you go to get income plus growth potential?

I recommend Dick Davis Income Digest, which in the latest issue, for example, included the following.

Donald Pearson of Pearson Investment Letter recommended Enterprise Products Partners (EPD), describing it as "a North American midstream energy company providing a range of services to producers and consumers of natural gas, natural gas liquids, crude oil and certain petrochemicals." Not only is the stock yielding 7.9%, earnings are expected to grow 15% in the year ahead!

John Staszak of Argus Weekly Staff Report recommended Illinois Tool Works (ITW), writing, "The company is effectively integrating acquisitions and focusing on the 20% of the customers that provide 80% of its revenue, helping it to outpace the competition. Despite lower margins in 2Q09, we expect management to improve acquired firms' margins over time. Free cash flow increased from $354 million in 2Q08 to $567 million in 2Q09." The stock yields 3.1%--which might seem a little low--but earnings are expected to grow 38% next year. And that means a rising stock price.

If she really wants yield, my reader should look at the closed-end PIMCO Municipal Income Fund (PMF), recommended by Joseph L. Shaefer of The Investor's Edge, who writes, "In normal times, I try to find closed-end funds selling at a discount, not a premium. But PMF, in its entire history, has almost never sold at a discount; in fact it has sold right around this premium level. I am buying because I'd rather pay a premium for outperformance than think I got a "bargain" by buying at a discount and getting underperformance. If you want steady income, PMF provides it. If you are willing to ignore the major fluctuations in price, and are comfortable with PIMCO's management, you will like it. If you want something negatively correlated to the equity markets, you will like it. If you want something that never moves more than a couple pennies a day, stay away from PMF. I'm okay with all this. Your mileage may vary." Today PMF yields 7.6%... tax-free.

Income investments like these can turn your portfolio into a non-stop, cash-pumping machine with all the big, fat, juicy dividends heading straight for your bank account. But only if you're investing in the best ones.

And with so many to choose from, it's easy to make a mistake and choose a lemon. It's important to do research before choosing an investment and carefully screen all opportunities for potential profitability. Dick Davis Income Digest is the perfect tool for this purpose.

Cordially,

-- Timothy Lutts
Cabot Chief Investment Strategist

P.S The Dick Davis Income Digest is like getting a well-researched financial intelligence briefing handed to you each month. You would have to read nearly 10 financial newsletters every day to get through the more than 200 newsletters the editors pore over every month looking for just the right income investments for you.

Even if you dabble in growth stocks (like me), adding a little safety and stability from income-producing investments can smooth out your returns and, more important, consistently put cold, hard cash in your pocket. You have nothing to lose, because I'm offering a risk-free trial to new subscribers that will give you all your money back if you cancel within 60 days.

And you have everything to gain. When it comes to investing in top-quality high-yielding securities, there's no better source of recommendations than Dick Davis Income Digest. Click here for full details.
 

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