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GOALS
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Div. greater than 10 yr. US Treasury Income
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Income increases every year
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Capital preservation with a growth bias
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The stocks you should buy for income should
deliver an income greater than you can get from a 10 year U.S., guaranteed Treasury. The stocks you buy should increase your
income every year.
BEAT THE 10 YEAR U.S. TREASURY
Thirty years ago you could have built a bond portfolio of
guaranteed U.S. Treasury bonds with a yield of seven plus percent and a
fantastic chance for capital appreciation.
Bond prices soared over those years.
Right now a similar bond portfolio will barely generate two percent and
if you paid more than par for the bond, your chance of losing money on your
holdings is significant.
Yet, investing in stocks does carry more risk and your
return should be greater than the competition, the U.S. Treasury. Every other investment carries even more risk
which makes investing in companies with dividends greater than the Treasury a
reasonable choice.
I use three percent as the minimum yield a company should
pay me. That is fifty percent more than
the Treasury. I was pleased to see the
group of stocks picked in my 2011 portfolio is yielding four percent.
US Treasury yields may increase enough to be competitive
with stocks and we may need more dividend yield to compensate. Right now, I am sticking with three percent
as the minimum yield.
DIVIDEND INCREASES
History is a good predictor for dividends. When you select a dividend stock, look at the
history of dividend increases to determine if this is a company you want to
own. I like to see dividends increased
every year since at least 2006.
Companies that increased dividends during the very difficult
2007 – 2009 years, should continue to increase dividends in the future.
CAPITAL PRESERVATION WITH A GROWTH BIAS
Another reward for taking risk by investing in stocks is the
opportunity to grow your capital. That
opportunity must always be measured against the desire for capital
preservation.
During the market crash in March 2008, these stocks lost
value with all the others. They continued
to pay income and increase income.
Their stock values have returned and soared in some cases just as has
all of the stock market.
NEXT STEP
The performance of dividend stocks during the two plus years I have been writing this blog suggests to me that
investing in companies that are selected to deliver increasing income with a
chance for growth is working.
This week I will profile a stock selected to perform in this
way. When you have money to invest and
it is for income, consider using this process to select your stocks. Look at the companies included in the 2011 and 2012 dividend machine portfolios to see how it works.
TheMoneyMadam
