Our central belief is that in a low interest-rate world, retirees are experiencing dwindling incomes from their risk-free assets (e.g. government bonds and cash equivalents). With ultra easy monetary policy the Federal Reserve will continue to pick the pockets of savers by keeping rates low with inflation (as measured by the CPI) at above 3%. We do not foresee interest rates at the short end of the curve rising any time soon. The debt burdens of sovereign governments as well as consumers are simply too high.
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Stable Income Streams
With a diversified portfolio of high-quality dividend paying stocks (like the ones on the list below), retirees can generate a stable income stream that will perform well in bull or bear markets.
While this is not an exhaustive list of high-quality dividend stocks, this sample portfolio would yield 6.4% with an average beta of 0.46. In addition, all of these stocks are in defensive industries and they have P/E ratios below 20.
As shown in the table below, the stocks on the list above have a positive history of dividend growth (even throughout the recent recession).
Due to the current market rally (which we believe will be short lived), investors should consider waiting for a pullback in these stocks to enter a new position or to add to an existing position.
Most of the stocks above are currently in a positive uptrend. As such, investors should be looking for near-term areas of support as potential entry points. Below are a couple of examples:
Abbott (ABT) should get some decent support in the $54.00 range. As shown in the chart above, the upward trend line, the 50-day moving average and support from the recent November low all converge in that area (see green box). Additional support will likely be found at the 200-day moving average ($51.46). We think that $52.00-$54.00 would be a great near-term entry point for ABT.
Verizon (VZ) also has a very nice uptrend in place. The stock should find near-term support around the 50-day ($37.61) and 200-day ($36.23) moving averages. We think that $36.00-$38.00 would be a great near-term entry point for VZ.