Truly, I love dividends in stocks, especially in my retirement account. Reason being is the stability and the added potential way for me to grow my portfolio. Many people’s arguments against dividends is that even if it gets reinvested, taxes chip away at what is actually reinvested. However, in a tax deferred or preferred account, this is not the case. Personally, I invest in blue chip stocks that pay dividends and have increased their payout to help supplement my stock portfolio growth.
Now, there are companies that have increased their dividend payout, instead of 25+ years like with the dividend aristocrats, there are dividend kings that require 50+ years to attain the title. This means in order to meet the requirements to this list, it is much harder, meaning these companies are much more reliable historically than even the dividend aristocrats. That being said, there are some real downsides to choosing some of these companies.
These companies payout can be quite meek. A lot of dividend kings have dividend payouts around 2-3%, meaning that the payout cancels out the rate of inflation over time. This means you are relying on the grow of the payout, along with the growth of the stock price to increase the value of your portfolio. However, you are able to park your money in these stocks and year over year, averaged out, your money is relatively safe. All in all, do not expect to 5x your money in the short term, or even 2x your money. There are some higher paying companies such as Federal Realty Investment (FRT), currently at approximately 5.3%, or Altria Group (MO), currently at approximately 8%. Companies like these two are ones you should try and “buy the dip” to enjoy the share appreciation along with the solid and reliable dividends.
Investing in these companies can increase the overall growth of your portfolio while having the knowledge that they have gone through the toughest of times including, recently, the 2008 financial crisis and the dot-com bubble in 2000. Even through the recent stock market corrections, when both Altria and Federal Realty Investment’s stock price fell, I bought fractional shares of both as there were tremendous upside in the stock price but also the amazing dividends that both companies pay.
These companies provide a reliable foundation for dividend portfolios that you cannot get elsewhere. If you want to be invested in the market for the upside over a savings account, or a high yield savings account, without the large downsides that could occur like the one in 2020 of a 40%+ drop, this is your answer. You will be able to grow your money in market expansions and, when market is down, leverage more defensive stocks and then sell to invest in those companies that have taken a larger hit.
Most recently, with inflation fears looming, tech stocks and high P/E stocks sank while many of these blue chip/defensive stocks actually appreciated in price. There is always a balance needed based on the market conditions, but having some exposure here will help your portfolio when certain sectors in the market tanks. Hopefully this helps broaden your thought of stocks or at least help introduce another perspective in this matter. But until next time…
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*Note: I am not a financial advisor. This is for entertainment purposes only.