Nearing Retirement? Stock Falls Increase Dividends

December 18th, 2007  |  Published in General

Money has a great article out today in which they highlight the fact that recent stock market turmoil is opening up a great opportunity for near-retirees looking for some high yielding dividend companies. Falling stock prices are enough to make anyone a little wary of going into the market but seeing blue chip stocks fall should be welcomed by near-retirees because it allows you to bolster up your portfolio with solid stocks paying hefty dividends, dividends in the 4% range. 4% is a magic number because that’s the rule of thumb many financial planners use when estimating how much of your next egg to draw upon each year.

What’s nice about the 4% dividend is that it’ll be inflation adjusted, because it’s tied to the stock price, which is an advantage over bonds, which are fixed income. But what about the risk of a recession or a bear market? Well, in the case of financial unrest, people tend to go back to the blue chippers as a foundation and so you’ll be nicely positioned to take advantage of the influx of funds to your newly acquired companies.

Still not convinced? Here’s a hard case example:

Ned Davis Research recently crunched the numbers for Money and found that a high-yielding portfolio launched at the worst time in the past 40 years – before the 1973-74 bear market – not only would have kept your income growing at the pace of inflation but would have increased in value eightfold (assuming an initial withdrawal rate of 4.5 percent).

An S&P 500 portfolio, on the other hand, would have been used up by now. Over time, high-paying stocks also generate more income than government bonds. That’s because while bond income is fixed, dividends aren’t.

So, dividend yielding blue chippers… something to think about.

  

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