Dividend stocks make up a major portion of my retirement portfolio. If you do not already have dividend-paying stocks in your retirement portfolio you should strongly consider adding them. By buying dividend-paying stocks and reinvesting the dividends you could have a nice stream of income when you retire.
Dividend-paying stocks have been out of favor the last few years because their small, steady returns didn’t have the appeal of speculative stocks with potentially huge returns. After hundreds of companies cut or eliminated their dividends in 2009 dividend stocks fell even more out of favor. As a result there are many dividend stocks available at good prices.
There are several reasons that dividend-paying stocks are good investments. The first is the power of reinvested dividends. For the period from 1925 to 1995 reinvested dividends comprised two-thirds of the return of the S&P 500. Another reason is that dividends offer protection against inflation. There are many companies that have a history of raising their dividends thus increasing your income. If you invest in fixed-income investments such as a CD or bond your income will not increase and you won’t have a hedge against inflation. A final reason is that after the latest round of dividend cuts most of the cuts should be over and as the economy improves companies could start increasing their dividends once again.
I have several stocks and funds in my dividend portfolio but I won’t make any recommendations here. If you want to learn more about dividend-paying stocks a couple of good books on the subject are The Ultimate Dividend Playbook: Income, Insight and Independence for Today’s Investor
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One response to “Dividend Investing for Retirement”
I like this approach. I knew of dividend stocks, but I didn’t know you could use it as a way to help yourself in retirement. Thanks for the tip!