Start Buying Dividend Stocks Now!

Here is why you must start buying dividend paying stocks now!

It has long been a strategy of mine to invest in high quality Dividend Growth Stocks as a  for retirement and I’m about to show you why you should do the same!

The beauty about this strategy is that it is not rocket science and that everyone can understand the basic principles behind it. I’m not promoting trickery or complex technical mumbo jumbo, just good old fashioned common sense with a side of logic.

The Stock Market Crash Scare Tactic

I’m sure that we have all heard that the baby boomer generation is aging and entering into retirement. We have also been told that all of these individuals are going to make a mass exit out of the stock market, causing the greatest stock market crash that we have ever known.

Some so called “Gurus” have suggested that the aging demographic is going to cause havoc with the markets by selling all of their stocks to fund their retirement.

Is This Possible?

In theory, the outlined scenario could be possible if all of the baby boomer’s withdrew their money from the stock market at the same time. But, as we know, the boomer generation lasts for a couple of decades…they were not all born in the same year! And even if they were, not everyone can or will remove their equity from the markets at the same time.
Therefore, we can clearly see that this scenario is highly unlikely.

But Aren’t All of The Baby Boomers Going to Buy Bonds?

While conventional wisdom dictates that fixed income (bonds) should comprise a larger portion of ones portfolio as they near retirement, it might not be as simple as black and white these days.

For instance, as time goes by the life expectancy of retirees becomes longer and longer. This means that a retiree will need to make their nest egg last for several more years than they my have previously thought.

Therefore, the retiree will need to take on additional risk in order receive higher returns in order to ensure that they do not deplete their principal prior to death. Taking on more risk means investing in more equities (stocks) gaining capital growth in their portfolio to fund a longer retirement.

So Why Should I Buy Dividend Paying Stocks?

The reason we must invest in dividend paying stocks now is because they will be the investment of choice to fund the retirement of Baby Boomers.

You see, dividend paying stocks have the potential for both capital gain and income production. Not only that, these investors will be looking for stocks that have a track record of increasing dividends…giving them yet another hedge against inflation. This combination, as explained earlier, will be necessary to fund the lengthening retirement that comes with a greater life expectancy.

If we combine this factor with today’s low interest rate environment, we can see that fixed income instruments (with the exception of TIPS) such as bonds and CD’s provide little, if any, protection against inflation.

Factor that in with the fact that historically, dividend paying stocks have outperformed non-dividend paying stocks.

So what do I do now?

In order to provide potential capital growth, income, and protection against the erosion of purchasing power, we must buy the best dividend growth stocks and hold them for a very long time. Read How To Choose Dividend Growth Stocks.

Even if you are young, the generation of retirees that are looking for this 3-part combination of shareholder yield to fund their retirement will start to accumulate shares in high quality, dividend growing, blue chip companies in order to fund a long retirement and help to hedge against inflation.

The accumulation of these stocks will, of course, drive up the share price which means big profits for you!

The Closing

You see, it doesn’t take rocket science to see what is going on. I’m certainly not leading the charge with this idea.

Get out there and search for some great companies that grow their dividends year after year. You won’t get rich overnight, but the strategy works.

Remember to always do your due diligence and as Charles Kirk reminded me, don’t buy a stock just for the dividend!

17 comments

  1. One reason I was taught to buy dividend paying stocks was this: the long term return on the stock market was 8-10% so if you could get half that return in dividends then you were that much closer to achieving that return.

  2. Eric,
    Thanks for the comment!
    You are correct. Buying a stock that will pay you half of the market average return per year in a the form of a dividend is great. We must also note that the stock’s value could easily lose 4% in a year, leaving you with a 0% total return. However, over the long term, dividend paying stocks are a great investment…especially those that increase their dividends from year to year.
    Thanks again for the comment!
    Tyler

  3. Nice site…I’ll be dropping by more often.

    I love dividend stocks that keep raising their dividends every year. Many years down the road you could be making 8-10% dividends if you compare it to the purchase price you paid for the stock 10-20 yrs ago. Hmmm I think I explained that in a way that I might have lost you…. or then again you may completely understand what I meant.

    Anyways nice blog

  4. Jonathan,
    Thanks for the comment!
    I know exactly what you mean. that is the whole purpose behind the dividend grwoth strategy and it is awesome.
    It is a long term strategy, but it works.
    Thanks again,
    Tyler

  5. Great points! I too do not buy into the “great selloff” theory. One counter to that would be a “great buy-in” of dividend paying stocks as the boomers look for a stable growing income.

    Best Wishes,
    D4L

  6. I didn’t have the time to check, but I live in Canada where you get great tax advantages on dividend income. The problem in retirement is that the dividend gross up calculation will make them looks like you a making 145% of what you really made (or something like that.) This could cause you to lose some or all of your Old Age Security if you’re not careful since it may be clawed back on income you didn’t really have. It’s something people need to talk over with a professional or calculate themselves and be aware of.

  7. Tyler,
    Great strategy and especially with this market decline some of the dividend yields have exploded!
    I screened the financials for example on DividendInvestor.com and you can get dividend yields close to the market average of 8%!
    http://dividendinvestor.com/

  8. This Blog and the other Dividend related Blogs are a great source of information. The S&P web site is a treasure of information on long term dividend paying stocks that continue to increase there dividends. The so-called Dividend Aristocrats are a great place to start. Also, the dividend achievers web site that is run by Mergents.

  9. I have been playing with the idea of investing some money into Phillip Morris stock.I am new to the “stock game” and looking for some experienced advice. I am a 27 year old married female with 3 children. Financially I am strapped. However, after analyzing PMI on the S&P 500, their shares rose to a closing price of around 52 dollars per share. If I invested say 104 dollars on two shares for now and continue to slowly buy more stocks at a rate of 1 -2 per month what kind of return, if any, would I be looking at over the course of a year? This is with the hopes the stocks, of course, would increase at a steady pace.

  10. Most importantly: the power of compounding interest!! That 4% dividend today on 100,000 portfolio productes 104,000 next year (even if the stock doesn’t appreciate) then 108,160 next year, then 112,486 next year. So, if the dividends are reinvesting you are earning interest and buying more shares as the dividend grows and the stock prices goes up!! Johnson and Johnson is a pretty nice example of this strategy over 50 years. Conidering the rule of 72, w a 7% return you double your money in 10 years…even if the stock never moves a penny in stock price!! Seems pretty smart compared to buying an equity and it ranging up and down 10% over 7 years and you finally sell it for a 10% profit…. The power of compounding interest, strongest financial tool out there!

    great post btw

    John

  11. Thanks for the pearls of wisdom.These would be very helpful to newbie investors.I am always thankful to see others giving high quality info towards community.Will be referring a lot of friends about this. Keep blogging.

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