Ten Dividend Growth Stocks For Retirement Income

If you are reading this site, chances are that your goal is to live off dividends in retirement. Dividends are more secure than share prices, which means that retirement income is much easier to project using dividend income. Dividend income is more stable than share prices, and it is easier to forecast. A retiree can easily figure out how much dividends will be generated by a company. On the other hand, no one has any clue whether the stock price will be up or down a year from now. This is the reason why retirees have been focusing their attention on dividend checks for decades. Rather than focusing on whether they stock market is up or down, these retirees focused on identifying companies with dependable dividends, margin of safety in dividend payments, and available at attractive valuations.

I went through my watchlist, and identified several promising dividend companies that have secure dividends. The companies include:

Five Companies Rewarding Shareholders With A Raise

As part of my monitoring process, I review the list of dividend increases every single week. I use this exercise to monitor existing investments, and to monitor the tone of companies I may be researching for potential acquisition. Dividend announcements provide a great glimpse about what management expects the near term business conditions to be.

Factors the boards of directors considers when setting the dividend include future earnings expectations, payout ratio, and dividend yield relative to those at peer companies, as well as returns available on other income oriented investments.

I then take those dividend hikes, and evaluate them against the past record, and look at the valuations to evaluate for potential entry points.

Over the past week, there were four dividend growth companies that announced their intent to reward their long-term investors with a dividend raise. The companies include:

Six Dividend Stocks Growing Shareholder Distributions

As part of my monitoring process, I review the list of dividend increases every week. I believe that this exercise provides a quick snapshot of the guidelines I have set up for my investing, and how I implement them with real world information.

In general I look for the following in evaluating companies ( my entry criteria).

1) A minimum of ten years of annual dividend increases
2) A P/E ratio below 20
3) A dividend payout ratio below 60%
4) Annual dividend growth that exceeds inflation
5) Analyzing the trends in earnings per share growth over the past decade
6) I do not have minimum yield requirements any more

Over the past week, the following companies raised dividends. The companies include:

The Pareto Principle In Dividend Investing

The Pareto Principle is an economic term invented by an Italian economist Vilfredo Pareto in the 20th century. It is also called the 80-20 principle, meaning that 80% of effects come from 20% of the causes. Vilfredo observed that 80% of the land in Italy is owned by 20% of the people. The ideas behind this principle are wide ranging in multiple fields, including investing. I am a firm believer that a small minority of the investments I make today will end up becoming so successful, that they will produce 80% of my investment gains over the next 40 - 50 years. This is why I am really careful about selling, even if a stock I own is up by 1,000%.

For example, in the book “The Tao of Warren Buffet “ written by Mary Buffett, I read that 90% of Warren Buffett’s returns came from just 10 stocks. I did some research, but unfortunately I was unable to find any detailed data behind this exercise.

For purposes of simplicity, Berkshire Hathaway (BRK.A) has accounted for over 99% of Buffett’s wealth. Before 1970, the Buffett Partnership accounted for majority of his wealth. This statement  is overly simplistic, as Buffeet had to make hundreds if not thousands of stock and business decisions, that compounded partners and shareholders net worths for decades. But the quote from above, discussed the investments that made Berkshire Hathaway what it is today.

General Electric Cuts Dividends For The Second Time In A Decade

You probably heard the news that General Electric is cutting dividends for the second time in a decade. The previous time when General Electric cut distributions was in 2009, during the financial crisis.

The dividend cut was not surprising, given the fact that the conglomerate had a high payout ratio amidst a stagnant trend in earnings per share.

For example, the company earned 99 cents/share in 2009, the first year after the financial crisis. By 2016, GE earned $1/share. At the same time, dividends per share grew from 61 cents/share to 93 cents/share. The company is expected to earn $1.07/share for 2017 and has paid 96 cents/share in dividends. The payout ratio was obviously too high, and unsustainable.

When you cannot grow earnings, and have a high payout ratio, you cannot pay dividends.

A lot of commentators saw the dividend cut as evidence against dividends however.

This doesn’t make any sense.

GE’s story is actually a cautionary tale against share buybacks.

A lot of investors are told that dividends and share buybacks are the same thing. It is a popular narrative that share buybacks and dividends are the same thing.

This is an incorrect statement.