Need another income stream? Here are 5 reasons to invest in dividend-paying stocks for retirement. – USA TODAY
Posted: September 30, 2020 at 1:51 am
Selena Maranjian, The Motley Fool Published 7:00 a.m. ET Sept. 29, 2020
It's a terrible mistake to ignore dividends when you're investing, as they can be powerful aids in growing your portfolio while you're still working, and they can serve you particularly well in retirement, too. But don't think of dividend-paying stocks as only appropriate for older investors.
Here's a look at five key reasons you should consider adding some (or many) dividend-paying stocks to your portfolio.
The first reason is perhaps the most obvious one: Dividend-paying stocks generate income. As an example, if you have a portfolio worth $400,000 with an average dividend yield of 3%, you're positioned to receive $12,000 each year, just from dividends. That money can be reinvested in additional shares of stock, to plump up your portfolio further, or it can be used for living expenses.
Forget cheap, high-risk stocks: Here are 3 better ways to invest
Want to invest in an IPO?: Heres what you need to know to profit on initial public offerings
Dividends aren't typically static, either: When they're being paid out by healthy and growing companies, they tend to be increased over time often annually. This can help your income streams keep up with inflation, which has averaged about 3% annually over long periods.
Check out a few examples below.
Company
Recent Dividend Yield
5-Year Avg. Annual Dividend Growth Rate
Starbucks
2%
20.7%
Microsoft
1.1%
10.5%
PepsiCo
3.1%
7.8%
Target
1.8%
4%
Chevron
7.2%
3.8%
Data source: Author calculations, Yahoo! Finance.
When you search for dividend-paying stocks for your portfolio, look not only for a meaningful yield, but also a payout that's growing well over time.
Another upside of dividend-paying stocks is that they're often relatively stable, compared to stocks of other companies. This is not always true, of course, but in general, for a company to commit to paying its shareholders a certain sum on a regular basis, its managers will be fairly confident of reliable revenue and earnings. That's why you'll find that a large proportion of blue-chip stocks are steady dividend payers. (On the other hand, many relatively young and fast-growing companies do not pay dividends at all, because they're plowing every available dollar into furthering their growth.)
(Photo: Getty Images)
Remember, too, that dividend-paying stocks don't merely offer dividends. The shares are still tied to companies that are working hard to grow and become more valuable over time. Thus, if you invest in healthy and growing dividend payers, you'll likely enjoy not just dividend income that increases over time, but also a stock price that increases over time and not necessarily at a paltry rate.
Indeed, when academics Eugene Fama and Kenneth French studied stock market data from 1927 to 2014, they found dividendpayers outperformed non-payers, averaging 10.4% annual growth vs. 8.5%. Here are some more examples of dividend payers:
Company
Recent Dividend Yield
10-year Avg. Annual Stock Growth Rate
Sherwin-Williams
0.8%
25.2%
Lowe's
1.5%
23%
Nike
0.8%
21.2%
Costco
0.8%
19.8%
Amgen
2.6%
17.4%
Discover Financial Services
3.3%
14.4%
Clorox
2.1%
13.9%
Kroger
2.2%
13.1%
Verizon Communications
4.3%
9.7%
Data sources: Yahoo! Financial and theonlineinvestor.com.
Finally, if you're relying on income from dividend-paying stocks in retirement and you end up not needing to sell off those shares over time for additional cash, you'll be able to leave them to your loved ones. This is a meaningful advantage over some other income-producing options, such as annuities. Fixed annuities have the advantage of providing even more reliable income, and they are worth considering in your retirement planning. Indeed, you may end up wanting to set up income streams in retirement from both annuities and dividends.
Don't dismiss dividends as only suitable for older investors and retirees. They have a lot to offer investors at every stage of life.
Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Selena Maranjian owns shares of Amgen, Costco Wholesale, Microsoft, Starbucks, and Verizon Communications. The Motley Fool owns shares of and recommends Microsoft, Nike, and Starbucks. The Motley Fool recommends Amgen, Costco Wholesale, Lowe's, Sherwin-Williams, and Verizon Communications and recommends the following options: long January 2021 $85 calls on Microsoft, short January 2021 $115 calls on Microsoft, and short November 2020 $85 calls on Starbucks. The Motley Fool has a disclosure policy.
The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.
Offer from the Motley Fool: The $16,728 Social Security bonus most retirees completely overlook
If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as$16,728 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after.Simply click here to discover how to learn more about these strategies.
Read or Share this story: https://www.usatoday.com/story/money/investing/2020/09/29/5-reasons-to-invest-in-dividend-paying-stocks-for-retirement/42699341/
See more here:
Need another income stream? Here are 5 reasons to invest in dividend-paying stocks for retirement. - USA TODAY
- Pope OK's Indy archbishop's retirement [Last Updated On: September 22nd, 2011] [Originally Added On: September 22nd, 2011]
- Shoaib Akhtar announces retirement [Last Updated On: September 23rd, 2011] [Originally Added On: September 23rd, 2011]
- William Regal Announces his retirement [Last Updated On: September 23rd, 2011] [Originally Added On: September 23rd, 2011]
- Shaq Announces Retirement, Will Miss Free Throws [Last Updated On: September 24th, 2011] [Originally Added On: September 24th, 2011]
- Elena Dementieva Announces Career Retirement [Last Updated On: September 24th, 2011] [Originally Added On: September 24th, 2011]
- 1st and 10 discuss Randy Moss retirement and legacy [Last Updated On: September 24th, 2011] [Originally Added On: September 24th, 2011]
- American Retirement - French and Saunders [Last Updated On: September 25th, 2011] [Originally Added On: September 25th, 2011]
- Planning Your Retirement [Last Updated On: September 25th, 2011] [Originally Added On: September 25th, 2011]
- Shaquille O'Neal Retirement Press Conference (6/3/11) [Last Updated On: September 26th, 2011] [Originally Added On: September 26th, 2011]
- Shahid Afridi Announced His Retirement [Last Updated On: September 26th, 2011] [Originally Added On: September 26th, 2011]
- NHL: Mike Modano Announces Retirement [Last Updated On: September 26th, 2011] [Originally Added On: September 26th, 2011]
- REALIST NEWS - Pentagon to cut veteran retirement program? [Last Updated On: September 26th, 2011] [Originally Added On: September 26th, 2011]
- Joe Montana Retirement [Last Updated On: September 28th, 2011] [Originally Added On: September 28th, 2011]
- Fire Chief Rick Lasky's Retirement Video - City Of Lewisville [Last Updated On: September 30th, 2011] [Originally Added On: September 30th, 2011]
- Bob's retirement celebration [Last Updated On: September 30th, 2011] [Originally Added On: September 30th, 2011]
- Smackdown vs Raw 2011 - Edge Retirement Tribute [Last Updated On: October 1st, 2011] [Originally Added On: October 1st, 2011]
- ★ Assassins Creed Revelations - Original Music "Assassin's Retirement Home" ft. TGG - TGN [Last Updated On: October 2nd, 2011] [Originally Added On: October 2nd, 2011]
- Ronaldo's Goodbye Part 1 - Retirement Announcement (with English subtitles) [Last Updated On: October 4th, 2011] [Originally Added On: October 4th, 2011]
- West Palm Beach Police Chief Announces Retirement [Last Updated On: October 5th, 2011] [Originally Added On: October 5th, 2011]
- Ben Stein Talks Retirement -- Part 1 [Last Updated On: October 6th, 2011] [Originally Added On: October 6th, 2011]
- Old Age Perils: Retirement made bleak in UK by rising costs [Last Updated On: October 6th, 2011] [Originally Added On: October 6th, 2011]
- Edge discusses retirement two weeks before being forced to retire [Last Updated On: October 7th, 2011] [Originally Added On: October 7th, 2011]
- Shaquille O'Neal Retirement Mix (All Of The Lights) [Last Updated On: October 8th, 2011] [Originally Added On: October 8th, 2011]
- Stock market impact on retirement [Last Updated On: October 9th, 2011] [Originally Added On: October 9th, 2011]
- Retirement Jock Jeff Thompson-Estate Planning Life Insurance Strategies [Last Updated On: October 10th, 2011] [Originally Added On: October 10th, 2011]
- Baby Boomers Retiring in Texas [Last Updated On: October 10th, 2011] [Originally Added On: October 10th, 2011]
- Hulk Hogan Announces His Retirement From Wrestling [Last Updated On: October 12th, 2011] [Originally Added On: October 12th, 2011]
- First Draft of Yao Ming's Retirement Speech [Last Updated On: October 13th, 2011] [Originally Added On: October 13th, 2011]
- Uncut: Shaq Retires - Video [Last Updated On: October 16th, 2011] [Originally Added On: October 16th, 2011]
- Farewell Discovery: Space shuttle's last landing before retirement - Video [Last Updated On: October 16th, 2011] [Originally Added On: October 16th, 2011]
- Yao Ming Retirement Speech (FULL) - Video [Last Updated On: October 17th, 2011] [Originally Added On: October 17th, 2011]
- Shaquille O'Neal Retirement Press Conference 6/3/11 - Video [Last Updated On: October 18th, 2011] [Originally Added On: October 18th, 2011]
- Tyler Seguin - Harvard Lampoon retirement skit - Video [Last Updated On: October 19th, 2011] [Originally Added On: October 19th, 2011]
- iPHONING MY WAY TO RETIREMENT $.70 AT A TIME by Eugene Lin, Ep 44 - Video [Last Updated On: October 19th, 2011] [Originally Added On: October 19th, 2011]
- Dilbert Animated Cartoons - Confidential Information, Retirement Planning and Visionary Leadership - Video [Last Updated On: October 22nd, 2011] [Originally Added On: October 22nd, 2011]
- Steve McNair Retirement Speech - Video [Last Updated On: October 23rd, 2011] [Originally Added On: October 23rd, 2011]
- Mark Recchi announces retirement after Cup win 6/15/11 - Video [Last Updated On: October 25th, 2011] [Originally Added On: October 25th, 2011]
- Tax-Saving Tips - Retirement Savings - Video [Last Updated On: October 26th, 2011] [Originally Added On: October 26th, 2011]
- When elephants retire - Video [Last Updated On: October 26th, 2011] [Originally Added On: October 26th, 2011]
- BayPort Credit Union: Retirement - Video [Last Updated On: October 28th, 2011] [Originally Added On: October 28th, 2011]
- Randy Couture Talks Machida Kick, Retirement - Video [Last Updated On: October 31st, 2011] [Originally Added On: October 31st, 2011]
- Raw: Edge reveals that he must retire from competition - Video [Last Updated On: October 31st, 2011] [Originally Added On: October 31st, 2011]
- Shaquille O'Neal Boston Celtics Highlight Reel (Retirement Mix) - Video [Last Updated On: November 2nd, 2011] [Originally Added On: November 2nd, 2011]
- Social Security vs. Private Retirement Accounts - Video [Last Updated On: November 3rd, 2011] [Originally Added On: November 3rd, 2011]
- Roy Nelson on Retiring Cro Cop at UFC 137, Eating Well + Steven Seagal Movies - Video [Last Updated On: November 6th, 2011] [Originally Added On: November 6th, 2011]
- FedEx Express Ad: Retirement - Video [Last Updated On: November 6th, 2011] [Originally Added On: November 6th, 2011]
- Mirko Cro Cop Talks Retirement - Video [Last Updated On: November 7th, 2011] [Originally Added On: November 7th, 2011]
- MLB - Tony La Russa Announces Retirement - Video [Last Updated On: November 8th, 2011] [Originally Added On: November 8th, 2011]
- Make your retirement fund recession-proof - Video [Last Updated On: November 10th, 2011] [Originally Added On: November 10th, 2011]
- Curtis Joseph Retirement Press Conference - Video [Last Updated On: November 13th, 2011] [Originally Added On: November 13th, 2011]
- Joe Paterno Retirement -- Is it Fair? -- UPDATE: Paterno FIRED - Video [Last Updated On: November 15th, 2011] [Originally Added On: November 15th, 2011]
- Finance Friday: How to Protect Your Retirement Date from a Market Decline - Video [Last Updated On: November 19th, 2011] [Originally Added On: November 19th, 2011]
- Best Of Shaq - Retirement Press Conference - Video [Last Updated On: November 19th, 2011] [Originally Added On: November 19th, 2011]
- Lampard and Becks on why Heskey's retirement is great news! - Video [Last Updated On: November 21st, 2011] [Originally Added On: November 21st, 2011]
- Brad Pitt interview: Retirement is on the way - Video [Last Updated On: November 22nd, 2011] [Originally Added On: November 22nd, 2011]
- Bill Gates' spoof retirement video - Video [Last Updated On: November 22nd, 2011] [Originally Added On: November 22nd, 2011]
- Retirement village purchase arrangements.m4v - Video [Last Updated On: November 26th, 2011] [Originally Added On: November 26th, 2011]
- What is a retirement village? - Video [Last Updated On: November 26th, 2011] [Originally Added On: November 26th, 2011]
- Retired CIA Officer Ray McGovern: Israel - The Elephant in The Room 1/3 - Video [Last Updated On: November 27th, 2011] [Originally Added On: November 27th, 2011]
- UNCUT: Frank Retirement News Conference - Video [Last Updated On: November 29th, 2011] [Originally Added On: November 29th, 2011]
- Retirement - Kaiser Chiefs - Video [Last Updated On: November 29th, 2011] [Originally Added On: November 29th, 2011]
- Peter Forsberg Jersey Retirement - Full Ceremony - HD [Part 2/3] - Video [Last Updated On: November 30th, 2011] [Originally Added On: November 30th, 2011]
- Alonzo Mourning Gets #33 Retired in Miami - Video [Last Updated On: December 1st, 2011] [Originally Added On: December 1st, 2011]
- Hulk Hogan's Retirement Takes A Shocking Turn - Video [Last Updated On: December 2nd, 2011] [Originally Added On: December 2nd, 2011]
- NewsRadio - Retirement - Video [Last Updated On: December 3rd, 2011] [Originally Added On: December 3rd, 2011]
- Frank's Retirement Flight in HD - Video [Last Updated On: December 4th, 2011] [Originally Added On: December 4th, 2011]
- NBA 2K12 My Player Retired - Video [Last Updated On: December 9th, 2011] [Originally Added On: December 9th, 2011]
- What Financial Firms don't Get About Retirement - Video [Last Updated On: December 11th, 2011] [Originally Added On: December 11th, 2011]
- Minecraft Tutorials - Tutorial World "Retirement Tour" - Video [Last Updated On: December 12th, 2011] [Originally Added On: December 12th, 2011]
- Retirement in Ecuador - Video [Last Updated On: December 13th, 2011] [Originally Added On: December 13th, 2011]
- UFC 135: Matt Hughes on Retirement + Koscheck (Pre-Fight Intv w/ Workout) - Video [Last Updated On: December 13th, 2011] [Originally Added On: December 13th, 2011]
- A retiring professor - Video [Last Updated On: December 15th, 2011] [Originally Added On: December 15th, 2011]
- Shaq's Retirement Speech -Funny- - Video [Last Updated On: December 19th, 2011] [Originally Added On: December 19th, 2011]
- Recession snatches retirement from America's workers - Video [Last Updated On: December 22nd, 2011] [Originally Added On: December 22nd, 2011]
- 5 Forbes Tips On How To Make Money During Retirement - Video [Last Updated On: December 24th, 2011] [Originally Added On: December 24th, 2011]
- Forrest Griffin Interview: Tito Ortiz, Ultimate Fighter, Retirement - Video [Last Updated On: December 25th, 2011] [Originally Added On: December 25th, 2011]
- Expert Investors On Saving For Retirement (Intelligent Investing With Steve Forbes) - Video [Last Updated On: December 25th, 2011] [Originally Added On: December 25th, 2011]
- BJ Penn on Diaz v. GSP, Retirement- INSIDE MMA Exclusive - Video [Last Updated On: December 29th, 2011] [Originally Added On: December 29th, 2011]
- Miyamoto's "Retirement", Kingdoms of Amalur Impressions, and Chrome Gaming! - Video [Last Updated On: January 1st, 2012] [Originally Added On: January 1st, 2012]
- SHAQ Announces Retirement - Video [Last Updated On: January 3rd, 2012] [Originally Added On: January 3rd, 2012]