Dr. Jeremy Siegel had an interesting point of view on dividend stocks earlier this month. The Wizard of Wharton postulated that within this new era of sustained low rates, dividend stocks are going to be the major source of retirement income going forward.
Siegel went so far to say that the future is going to look like the 1950’s and 1960’s — when investors bought stocks solely for their dividends.
I tend to believe that in some aspects he’s right. When it comes to retirement, dividend stocks are the foundation to making your golden years last.
The steady income stream of dividends can help pay for life’s necessities and reduce the need for selling and withdrawing money from your portfolio. At the same time, stock dividends carry lucrative tax advantages and offer the ability beat inflation as companies raise their payouts. That’s something that the already low interest from bonds can’t do. And let’s not forget that dividend payments can help cushion downturns in stock market as well.
So, Siegel is certainly right-on when it comes to dividends and they should be part of your retirement portfolio. And luckily, there are plenty of ways to get your dividend stocks fix.
Here’s one stock, one ETF and one mutual fund to get you started.
Dividend Stocks for Retirement Investors: General Electric Company (GE)
When it comes to dividend stocks, General Electric Company (GE) could be king of them all.
Yes, there was that nasty dividend cut during the recession … but you know what? That wasn’t because of GE’s core industrial businesses. It was because it was loaded with countless “toxic” financial assets.
But today, GE is back to making things.
The firm has sold off basically its entire portfolio at GE Capital. That isn’t tied to providing financing for its industrial operations. Bye-bye real estate loans, see-ya later consumer credit cards. What’s left is a heavy manufacturing powerhouse in the fields of energy, automation and healthcare.
And GE continues to reach into higher-tech businesses such as complimentary software. Those efforts will result in higher margined fruit down the road, fruit that will translate into dividends.
After shedding its financial past, GE is acting like the General Electric of old and it has returned its dividend to basically where it was before the recession. With profits continuing to come in and demand for industrial applications robust, GE should be able to expand its dividend even further down the road.
When it comes to dividend stocks, GE and its 2.98% yield could be one of the best picks for retirement investors.
Dividend Stocks for Retirement Investors: iShares Core High Dividend ETF (HDV)
For investors looking to get their dividend stocks fix via exchange-traded funds, the iShares Core High Dividend ETF (HDV) is a prime place to start their search. Part of BlackRock, Inc.’s (BLK) core line of ETFs, HDV makes adding a dose of quality dividend paying stocks an inexpensive breeze.
The ETF tracks the Morningstar Dividend Yield Focus Index. This is a measure of U.S. firms that pay above-average dividends. However, this isn’t full of risky, high-yielding dividend blow-ups waiting to happen. HDV’s index also applies various fundamental screens that separate the wheat from the chaff. That creates a portfolio of 75 different stocks with large moats and real earnings behind their dividends.
That focus on above-average dividend payers plus quality gives HDV a juicy yield as well. The ETF has a 30-day SEC yield of 3.31%. That yield can go a long way to helping power your portfolio through retirement.
HDV comes with a second bonus. It’s dirt cheap to own. iShares core line-up is designed to be low cost and that’s reflected in HDV’s expenses. The ETF costs just 0.12% — or $12 per $10,000 invested — to own.
That makes it a great way to play dividend stocks.
Dividend Stocks for Retirement Investors: Vanguard Equity-Income Fund (VEIPX)
Vanguard may be known for its low-cost index funds, but it does have some stellar actively managed mutual funds as well … when it comes to dividend stocks, that’s the Vanguard Equity-Income Fund (VEIPX).
VEIPX focuses its attention on large-cap value stocks in the U.S. and seeks to find those stocks that pay above-average dividends as well as have the ability to produce long-term capital appreciation. Basically, it finds steadily growing firms that pay decent dividends. You know, the “Bedrock of America.” Top holdings include Exxon Mobil Corporation (XOM) and Wells Fargo & Co (WFC).
Stock picking duties are divided between two managers. Superstars at Wellington Management handle about 60% of the funds $21 billion in assets — if you include other share classes. Vanguard’s own equity investment group handles the rest. Wellington tends to focus on fundamentals, while the Vanguard side uses more quantitative analysis.
The combination has been good for dividend stocks investors. VEIPX has managed to produce a 10.05% average annual total return since its inception in 1988 and yields 3.21%.
And despite being an active fund, VEIPX is still Vanguard cheap at just 0.26% in expenses.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.