By John Drachman
Last January already feels like a century ago. Stocks had just surpassed their longest-ever bull market. Ninety days later, everything changed as yields, equity prices and job numbers plummeted. Meanwhile, the search for income intensified as 10,000 baby boomers a day continued to join the ranks of 65-year-olds ready to transition from a monthly paycheck to a monthly retirement income check.
“Income security is the single biggest concern I’m hearing from my clients,” says wealth manager Sonia Joao. “Many of my clients are at that critical age when they become targeted for early retirement, and that’s now more likely than ever with companies being forced to reduce headcount. Replacing that lost income is our top priority.”
Against the backdrop of the bond market’s lackluster yields, dividend-paying equities are once again brightening investor moods. As of June 30, the dividend yield from the S&P 500 Index reached 1.9% easily outperforming 10-year Treasuries offering an anemic 0.7%. The longer-term record for dividend yields was even brighter. S&P 500 Index companies that increased their dividends over the past year boosted payouts by an average of 42.2% versus the firms that reduced or suspended dividends by an average of only 13.1%.
Whether you are looking for yields or a chance to grow your dividends over time, there are good reasons to consider dividend-paying stocks:
- Getting paid to wait: In an unpredictable world, receiving a predictable quarterly dividend can be very reassuring. Instead of fretting over the ups and downs of the stock market, kick back, cash your checks and wait out troublesome uncertainties.
- Companies are still cash rich: Paying dividends to stockholders just makes good sense to a business. Otherwise, too much cash on hand can tempt firms to dole out higher bonuses and salaries to their already well-paid C-Suite types.
- Dividends buffer the impact of downward stock price pressures: Traditionally, dividend-paying common stocks are positioned toward the more conservative end of the risk and reward spectrum.They tend to be less volatile than more aggressive growth stocks during periods of above normal volatility.
- Reinvesting dividends can accelerate return: Investors can either reinvest their dividends on their own or sign up for a dividend reinvestment plan to grow their return over time.
Finding dependable dividends takes due diligence
A number of online publications routinely analyze the market to uncover the most dependable dividend-paying stock selections they can find. (Editor’s note: myperfectfinancialadvisor.com neither recommends nor approves of any specific investment.)
In 15 Top Dividend Stocks to Buy for 2020, U.S. News (June 24, 2020) analyzed some pharma favorites like Bristol-Myers Squibb (BMY) Medifast (MED), AbbVie (ABBV) and Johnson & Johnson (JNJ). The May 11, 2020 issue of Kiplinger took a close look at Real Estate Investment Trusts (REITs) in 11 Monthly Dividend Stocks and Funds for Reliable Income and liked Realty Income (O), Stag Industrial (STAG) and LTC Properties (LTC). Barron’s (April 20, 2020) exhaustively analyzed The 40 Stocks in the S&P 500 with the Safest Dividends, favoring names like Honeywell International (HON), Caterpillar (CAT), Nike (NKE) and McDonald’s (MCD).
Searching for income is one objective among others en route to constructing a well-diversified portfolio. Finding the right balance of risk and reward takes a fair amount of self-awareness, discipline and professional expertise. Do your due diligence; then, consider confirming your thinking with a licensed investment professional. Validating stock assumptions now can avoid regrets later.
John Drachman is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. John is an IABC award-winning writer, who applies his 30 years of financial marketing experience toward advancing the dialog between investors and investment professionals.