Think dividends are for lazy, below-average investors who are content with simply tracking the market? Think again. Dividend investing could be the only way to preserve your wealth right now.
But more important, dividend stocks don’t just preserve wealth — they can constantly build your retirement funds through a steady stream of income. Don’t underestimate the power of a regular payday — especially if the yield is 5%, 6% or more. Who in their right mind would pass up 6% annual returns in this choppy market?
Still convinced that long-term dividend investing is a strategy for the timid? Then check out these five compelling reasons to consider dividend stocks for your portfolio.
Dividends Are Only Getting Bigger From Here
This may be your best opportunity to get into the dividend game. If you look at the historic yield of the S&P 500 index you’ll see that yields have been steadily moving upwards. (Thanks to my friend Eddy Elfenbein of Crossing Wall Street for the data for this chart.)
Click to EnlargeThis is in large part due to high-growth tech stocks maturing and moving beyond disdain for dividends. Consider Microsoft (NASDAQ:MSFT), which has doubled its quarterly payout over the last five years, from 10 cents to 20 cents, for a 2.8% yield. Intel (NASDAQ:INTC) has also doubled its dividend since 2007, from 11.25 cents to 21 cents for a 3.3% yield currently. And in 2011, Cisco (NASDAQ:CSCO) started paying its first dividend ever.
This is alongside other traditional dividend payers upping the ante — like McDonald’s (NYSE:MCD), which has boosted its payout from 37.5 cents a quarter in 2008 to 70 cents currently, for a 2.8% yield.
True, yields pop higher during a down market and slump during a rally because they’re calculated as a percentage of share prices. But the trend in stocks from Microsoft to McDonald’s can’t be ignored, and dividends appear to be moving steadily upwards.
That means the stock you buy now with a 10-cent payday could easily pay 12 cents, 15 cents or even 20 cents several years down the road. Even if you’re not impressed with a current yield of around 2% or 3%, over time your yield on cost could rise dramatically due to dividend increases.