Equity Dividends In A Retirement Portfolio

Normally, long term bonds provide an important source of income for a retirement portfolio. However, as can be seen from the financial events of the last few years, these are not normal times.  

In fact, with the Federal Reserve policy of keeping interest rates artificially low " for an extended period of time" investing in long term bonds becomes increasingly risky. Since bond prices drop in a rising inflation and interest rate environments, the future may not be too kind for the bond investor.  

Historically, equities do much better than long term bonds in an environment of rising inflation and interest rates.  So, high quality dividend paying stocks that have dividend yields like bonds may be the best choice to obtain the income in the years ahead in a retirement portfolio.

The following studies show the power of dividend equity investing over time: 

Standard and Poor’s research through the end of 2009 shows their Dividend Aristocrats, stocks with at least 25 years of dividend increases, beat the S&P 500 over the trailing 3-years, 5-years, 10-years and 15-years.

A study from Ned Davis Research determined that from 1972 to 2006, non-dividend-paying stocks produced an annual average return of 4.1% vs. dividend-paying stocks’ 10.1%. The research also showed that stocks with at least five years of dividend growth outperformed the S&P 500 every year from 1972 to 2009.

Since 1926 dividends have accounted for 35% of stocks’ total return.

Not only have dividends been a main component of the stock market’s long-term return over the years, but they’re also a critical indicator of a company’s health, and thus can be a key factor in evaluating a company for investment

Companies pay dividends after accounting for operating expenses and any expansion plans; when a company consistently has enough cash left over to reward investors, it’s a likely indicator of good management and healthy cash flows. Some of the metrics that make it a worthwhile investment for the intelligent long term investor.

Dividend investors do not lose all interest in the price of their shares, but price doesn’t matter as much. If prices fall, the dividends keep coming. Price declines often present attractive buying opportunities for additional investment.

Dividend-paying stocks tend to increase in price more slowly than market-leading stocks during strong bull markets. They do not tend to lead markets up. But they don’t tend to lead them down, either.

Core Model Retirement Portfolio holding BP pays 5.85% and many of the core positions in the Portfolio  pay substantial annual dividends. Abbott Labs pay 3.26%, Pepsi pays 2.89%, Vodafone pays 5.70%, FPL Group pays 4.18%, GE pays 2.21%, and ADP pays 3.03%. Meanwhile, Bank Of America has indicated that it will reinstate a larger dividend when its earnings recover in the next year.

The eWorldvu Model Retirement Portfolio has been constructed with dividend income as well as capital appreciation in mind. The Portfolio recognizes the need for substantial equity dividends in a Retirement Portfolio and recieves over 3% in current annual dividend distributions from its equity positions.   

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