I’m getting old. I’m in my 40s and have been there a while. I know that’s not technically old, but it’s getting late in the game for some of life’s biggest decisions like retirement planning. Do I have enough saved up? At what age do I want to retire? Where do I want to live, etc.?
One smart and simple way to prepare for retirement is to start building up a baseline of stocks that pay out dividends. Here are a few thing I look for when considering dividend paying stocks to add to my portfolio:
- Dividend yield – usually stick between 3-7%. There are some companies that pay significantly more, but it’s often a red flag.
- Dividend growth rate – For a quick look, I track the 5 year growth rate. I also visit the S&P Dividend Aristocrats to see what companies have raised their dividend for 25 consecutive years. That’s freaking amazing.
From there, it’s just about overall stock/sector strength. For example, oil companies might pay a slightly higher dividend when oil prices are depressed and then pull the dividend payout back some when oil prices (profits) rise.
A few dividend stocks on watch
My approach for dividend investing is to find a few low-volatility stocks that are in relatively predictable sectors like Consumer Staples or Utilities. I’ll build around those, but also toss in a few high flyers with higher volatility. These will require a little more attention, but you won’t see me in 15% yielding stocks with high beta.
PM – a nice paying consumer staple that has a 9 year payout growth history
CVX – overall good stock with reliable dividend for over 31 years
PG – A slow and steady winner. You won’t make a lot of money on the underlying stock, but a 3% dividend yield is not too bad for the ‘ol retirement account.
HD – This one is a little different because you’re really owning this one for the underlying equity and less for the dividend. As long as it continues to do well, then the small dividend is just a nice bonus check. You’re also looking at a 21% 3 year dividend growth average.
BIP – Lastly, this infrastructure play pays a good dividend and has a pretty good chart set to possibly break out above $44.