Over the last few months, it seems that the markets have been trading in a sideways pattern-- up a couple of days then down a couple of days. One thing that seems to be lacking is any direction one way or the other. The important thing here is to keep volatility in perspective-- especially by someone who is approaching retirement or actually currently retired. When you stop to consider that we are living longer and longer, being 65 years old means that you may have a pretty good chance of living an additional 30 years in retirement.
Stop and consider that for just a moment. A man or woman who is 65 years old today, very likely has an additional 30 years ahead of them. Many in this situation are starting to adopt the attitude that they need to stop investing and park that money someplace safe and draw down their 4%, or whatever they have targeted. To that I say, "nonsense."
When you begin to see the time factor in our investment reality, then you start to look at the possibilities for success in a much different light.
Often times you will hear someone give the advice--"you shouldn't buy any stock unless you are going to hold it for at least 10 years." When you consider the 30 years ahead, you have already met that test for that advice! For all intents, the investor who is 65 could be looking at the coming years as three distinct 10 year investment periods.
As a Dividend Growth investor approaching retirement, I understand a few things about my own situation. First, there's a lot of things that I just can't do very well anymore, physically. But, I haven't lost my mind yet, and I am perfectly capable of making my own financial decisions. That particular talent may erode in the future, but setting up a game plan for income in the future is a little like buying an annuity without any of the downside. You do that through dividend growth stocks.
My own preference is to target companies that have a long history of paying dividends; companies that have increased those dividends on an annual basis; companies that have grown those dividends at a rate faster than inflation; and companies that have the earnings growth to sustain those dividends in the future.
I also believe that "value" is important and that there are plenty of opportunities out there for any investor to build a solid dividend paying portfolio moving forward.
So, how do I go about finding the right stocks for my core portfolio? Without a doubt, the best place to begin is at David Fish's site: The Drip Investing Resource Center. For the uninitiated, David Fish provides a monthly service where he lists stocks that he calls Dividend Champions, Dividend Contenders and Dividend Challengers. I can't tell you how much I use and appreciate David's analysis of his CCC stocks. I cannot fail to advise you to visit his site and begin looking for stocks that might be appropriate for your own situation. In light of the 30 year investing opportunity moving forward, here are some of my favorite companies:
Dividend Champions, Challengers and Contenders:
Altria (MO): Is a tobacco company. MO currently pays a dividend that yields 5.95%. Over the last three years, MO has a 5 year dividend growth rate of 14.8%.
Kimberly Clark (KMB) is a personal products company that currently pays a dividend that yields 4% and KMB has a 5 year dividend growth rate of 8.1%. Procter & Gamble (PG), Colgate Palmolive (CL) are additional companies to consider.
AT&T (T) is a telecommunications company that currently pays a dividend that yields 5.8% and T has a 5 year dividend growth rate of 5.4%. Other companies in this category that are worth a look would be Verizon (VZ) and for a riskier play, perhaps CenturyLink (CTL) which has been trading at a potential value price.
Clorox (CLX) is a cleaning products company that currently pays a dividend that yields 3.8% and has a 5 year dividend growth rate of 13.4%. A recent takeover target, CLX had a price run up, but appears to be a target at $60-$62 a share, moving forward, now that the take over appears to be less of an issue and with a yield that will get an investor closer or at the 4% YOC.
Johnson and Johnson (JNJ) is a drug and consumer products company that currently pays a dividend that yields 3.5% and has a 5 year dividend growth rate of 10.6%.
Pepsi Cola (PEP) is a beverage company that currently pays a dividend that yields 3.27% and has a 5 year dividend growth rate of 13.7%. Coca-Cola (KO) is one of my favorites. The dividend is under 3% at this time, but keep it on your watch list.
Microsoft (MSFT) is a technology company that currently pays a dividend that yields 3.0% and has a 5 year dividend growth rate of 11.4%.
Intel (INTC) is a technology company that currently pays a dividend that yields 3.4% and has a 5 year dividend growth rate of 14.5%.
Chevron (CVX) is an oil and gas company that currently pays a dividend that yields 3.0% and has a 5 year dividend growth rate of 10.2%. I also like XOM (I know I sold some, but I still am long with XOM) It has a dividend under 3% but like COP is a leader in the oil and gas industry.
Lockheed Martin (LMT) is a aerospace and defense contractor currently paying a dividend of 5.25% and a 5 year dividend growth rate of 20.2%. Raytheon (RTN) is another defense contractor you might consider.
There are many more companies that might very well fit your criteria a portfolio of dividend paying stocks. These companies mentioned here are intended to be examples of some of the choices that are available to dividend growth investors in the CCC list of companies.
I think it is important to consider an entry point price that you want to pay for your initial purchase. I like to look at fundamentals for my own companies relative to their industry and to a set of criteria that I use for all of my stock selections. One price point criteria that I use is that I want to target a yield and back into the price I am willing to pay for the stock in question.
For example, I do not purchase companies that pay under 3% yields at this time. If a company has a compelling story and the fundamentals look good to my own criteria, then I may write a limit order on a stock that yields less than 3%, by backing into the price so that my purchase will give me the 3% initial yield on cost that I am seeking.
Volatility is here to stay. Make it your ally. Identify the companies that you want to own and look for buying opportunities on larger dips. Place limit orders so that you don't have to be watching it all the time-- but have a plan and work that plan. Remember, many of you are looking at a 30 year time horizon!