Ah, retirement. After a life’s work it’s finally time to enjoy what’s the most important to you.
But to make the most this time, it pays to focus on building an effective retirement portfolio that will build wealth as you work — and even continue to grow when you start living on this savings.
Investing for dividends is one of the usual strategies for retirement. Often, that means investing in dividend stocks for income once you reach retirement. But for me, I advocate that investing in dividend stocks shouldn’t just start after your retirement, but should be a regular part of your portfolio throughout your life. Betting on stock prices rising is a lot more risky than having stocks that pay dividends — even when you’re young.
It’s much harder to go broke when you have regular checks coming in. So even before retirement, your portfolio will have a better chance of growing in value by stacking up dividend payments and reinvesting those payments.
And the proof element can be seen in the power of dividends in the general stock market. If you take a look at the performance of the S&P 500 over the past thirty-years you’ll see that in price, the index is up 872.07%. But if you add in the dividends — or even the average dividend yield of the index — the return swells to 1,751.42%.
An Even Better Dividend Strategy
One of my favorite strategies for a dependable retirement portfolio is dividend stocks that pay their dividends throughout the year. Now, most leading U.S. stocks pay dividends each quarter. But by selecting good dividend stocks that pay in different cycles — January, July and October, then February, May, August and November, and finally, March, June September and December — you can have dependable monthly payouts throughout the entire year.
And this is what is behind The Incredible Dividend Machine, one of the model portfolios inside my Profitable Investing service.
As an introduction, let me walk you through the three payout cycles and some prime examples of good dividend payers for income and growth for the ultimate retirement portfolio.
Dividend Cycle A (January, April, July and October)
In Cycle A there’s a great technology company that’s increasingly focused on more dependable revenue and dividend payments that’s also a good performer. Cisco (NASDAQ:CSCO) is up 28.43% over the last year — including dividends.
Much like the strategy I’m outlining here, Cisco is also shifting to the successful business model of recurring — or subscription — income. Bundling equipment with services is adding to the rise in revenue flows. There is still a lot to be done, but I like what I’ve seen from CSCO so far during this shift. And a 2.63% yield makes CSCO a good start for the year’s income.
Drug companies are one of the big winning sectors in the market and in Cycle A, Merck (NYSE:MRK) — up 57.77% for the trailing year including dividends — is a great performer for income. Merck is balancing its management of its existing drugs and funding its development pipeline to keep the revenues coming and growing. Yielding 2.67%, MRK makes for another great Cycle A buy.
Dividend Cycle B (February, May, August and November)
In the second dividend payout cycle, there are plenty of good companies to look to for income.
In particular, the market for natural gas continues to be a bullish market on genuine supply and demand conditions. One of the best in this market is ONEOK (NYSE:OKE) — up 27.20% over the last 12 months with dividends — is a gas-focused company that is making hay while the sun shines on gas. With its dividend running at 5.00,% OKE is a buy for income and growth.
Utilities continue to be another of the dependable part of the market. And in Cycle B, Verizon (NYSE:VZ) — up 34.35% for the trailing year including dividends keeps — delivering good income with its yield of 3.97%.
Dividend Cycle C (March, June, September and December)
The third dividend cycle, Cycle C provides many solid companies with histories of good dividend payments. Here are some highlights.
One is Pfizer (NYSE:PFE), which is up 24.65% for the trailing year including dividends. The pharmaceutical giant is now working on a co-op deal with GlaxoSmithKline (NYSE:GSK) to combine their consumer health businesses and it should be good for shareholders. It makes PFE a good buy — with a yield of 3.42%.
For another pick from the utilities sector, Public Service Enterprise Group (NYSE:PEG) serves the Northeastern and MidAtlantic. PEG is up 24.13% in 12 months and has a nice dividend yield of 3.18%.
Lastly, this REITs is set to profit as the baby boomers age. Ventas (NYSE:VTR) focuses on senior housing and healthcare properties. VTR is up 39.76% for the trailing year and pays a dividend 4.90%.
The Bottom Line on Your Retirement Portfolio
I have one more stock for you to consider that fits into my retirement strategy, but not into my cycles: Realty Income (NYSE:O) has been dubbed “The Monthly Dividend Company” and pays out its 3.69% dividend — you guessed it — monthly. This diverse REIT is up a whopping 53% in 12 months and will guarantee you a monthly check.
All in all, by focusing on monthly dividends in your portfolio, you’ll be on your way to building the ultimate retirement portfolio that will pay you for the rest of your life.
Neil George is the editor of Profitable Investing and does not have any holdings in the securities mentioned above.