Over the past two years, the yields on most investment grade fixed income securities have declined substantially. Investors who need to generate income in retirement are running out of options. For example back in 2006 and 2007 the yield on US 10 year Treasury note was almost 5%. Currently the yield on US 10 Year Treasury note is less than 3%. As a result many investors are focusing their attention to blue chip dividend stocks these days.
There are many solid Blue chip stocks which yield more than fixed income. In addition to that solid dividend stocks could also afford to increase the dividend payment, which offers protection against inflation. Thus, investors could either tie up their money for a prolonged period of time in bonds or they could purchase dividend stocks which provide a higher yield as well as the possibility of dividend growth to outrun inflation.
Finding the best dividend stocks does require some research however. Investors should evaluate whether the company researched has the ability to raise earnings for the foreseeable future. Investors should then make sure that they are not overpaying for the shares. The sustainability of the dividend payment is important as well, since a well covered dividend could withstand short-term earnings fluctuations much more easily than a not so well covered payment. In addition to that, by focusing on companies with a strong culture of paying higher dividends for at least ten consecutive years, investors would be increasing their chances of generating income in retirement that at least keeps up with inflation overtime.
Johnson & Johnson (JNJ) engages in the research and development, manufacture, and sale of various products in the health care field worldwide. The company operates in three segments: Consumer, Pharmaceutical, and Medical Devices and Diagnostics. The company has managed to deliver a 11.10% average annual increase in its EPS since 2000. Analysts expect a 9.80% increase in EPS to $4.83 in 2010, followed by an 8% increase to $5.23 in 2011. Yield: 3.60% (Analysis)
Chevron Corporation (CVX) operates as an integrated energy company worldwide. The company has managed to deliver a 3.10% average annual increase in its EPS since 2000. For fiscal year 2010 analysts expect earnings to increase by 53% to $8/share. Analysts also expect earnings per share to rise 25% from there to $10/share by FY 2011. Yield: 3.60% (analysis)
Abbott Laboratories (ABT) engages in the discovery, development, manufacture, and sale of health care products worldwide. It operates in four segments: Pharmaceutical Products, Diagnostic Products, Nutritional Products, and Vascular Products. The company has managed to increase earnings per share by 8.40% on average since the year 2000. For fiscal years 2010 and 2011, analysts expect EPS to increase from 3.69 in FY 2009 to $4.24 and $4.77. Yield: 3.40% (Analysis)
Kimberly-Clark Corporation (KMB), together with its subsidiaries, engages in the manufacture and marketing of various health care products worldwide. The company operates in four segments: Personal Care, Consumer Tissue, K-C Professional & Other, and Health Care. Yield: 4.00% (Analysis)
The Procter & Gamble Company (PG) engages in the manufacture and sale of consumer goods worldwide. The company operates in three global business units (GBUs): Beauty, Health and Well-Being, and Household Care. Earnings per share have grown at an average pace of 12.50% per annum. For FY 2010, analysts expect the company to earn $4.15/share, which is higher than 2009’s EPS of $3.58. For FY 2011 analysts expect Procter & Gamble to earn $4.10/share. Yield: 3.20% (Analysis)
The Coca-Cola Company (KO) manufactures, distributes, and markets nonalcoholic beverage concentrates and syrups worldwide. It principally offers sparkling and still beverages. The company has managed to deliver a 14.30% average annual increase in its EPS over the past decade. Analysts are expecting a 17% increase in EPS to $3.45 for 2010 and $3.76 by 2011. Yield: 3.10% (Analysis)
Universal Corporation (UVV), together with its subsidiaries, operates as the leaf tobacco merchants and processors worldwide. It engages in selecting, procuring, buying, processing, packing, storing, supplying, shipping, and financing leaf tobacco for sale. Earnings per share have grown by 1.50% on average since 2000. Analysts expect UVV to earn $5.25/share in 2010 and $5.63/share in 2011. This is an increase over the $4.32/share Universal earned in 2009. Yield: 5% (Analysis)
Sysco Corporation (SYY), through its subsidiaries, markets and distributes a range of food and related products primarily to the foodservice industry in the United States. The company has managed to deliver an 11.20% average annual increase in its EPS since 2000 to 1.80/share. For the next two years analysts expect EPS to increase to $1.81 and $1.92 respectively. Yield: 3.20% (Analysis)
While dividend stocks would likely produce total returns that are higher than purchasing fixed income today, bonds still should have a place in a retirement portfolio. An allocation to US Treasuries would have protected one’s portfolio during the Great Depression or during the most recent financial crisis. Ensuring that your portfolio lasts a lifetime should be much more important than focusing on one asset class. Blue Chip dividend stocks would provide inflation adjusted stream of income over time, while even a modest 25% allocation to bonds purchased over time would provide payout stability in the event of a deflation or during an economic recession coupled with low inflation. In addition to that stocks are inherently riskier than government bonds, and as such there is a possibility of losing principal invested.
Full Disclosure: Long all stocks mentioned
This article was included in the Carnival of Personal Finance #272 – Yogi Berra Edition!
- Inflation Proof your income in retirement with Dividend Stocks
- Living off dividends in retirement
- Fixed Income for dividend investors
- Dividends Stocks versus Fixed Income
ConocoPhillips (COP) just announced that it is cutting its quarterly dividend from 74 to 25 cents/share. This comes after management consta...
It is nice to have a diversified income stream . While many seem to look for a focused method, I look for a diversified method of generating...
Today marks the eight year of Dividend Growth Investor website . I wanted to thank all of you who follow my humble site. I didn’t really exp...
Most of my money is invested in a portfolio of companies that have a track record of regular dividend increases . I have found that dividen...
"You pay a dear price for cheery consensus. " Warren Buffett I like to buy shares when prices go down. This ensures that my c...
Warren Buffett is one of the best investors in the world . He is skilled in the art of capital allocation. I have always suspected that the ...
Most readers know me as a person that buys a stock in a company I like, and then I keep building a position as long as valuation and allocat...
To be honest, I didn’t do much investing wise in January. Of course, I didn't panic and I stayed the course . Per my earlier article I s...
The first three weeks of this month have been terrible for investors worldwide . It could be painful to watch your portfolio value decrease ...
Some of the best investors in the world, Charlie Munger and Warren Buffett, have been able to make it by having a concentrated portfolio of ...