Sunday, March 17, 2013

BUY THESE STOCKS FOR DIVIDENDS


GOALS
Div. greater than 10 yr. US Treasury Income
Income increases every year
Capital preservation with a growth bias

 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