Although many companies pay dividends, mainly more established companies with less growth potential, there are different levels for companies that pay dividends. They are considered companies that have managed to increase their annual dividend payment for at least 25 consecutive years. Dividend Aristocrats.
Here are three reasons why you should consider Dividend Aristocrats for your retirement portfolio.
1. They can withstand bear markets
A bull market is defined as a prolonged period of steady increases in stock prices, while a bear market is defined by a steady decline in stock prices. Historically, the stock market has shown that it is susceptible to both bull and bear markets, and neither will last forever. Investors love bull markets because their investments are rising, but bear market it can cause some investors to panic when they see their portfolios shrink.
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One of the great things about dividend aristocrats is that they have proven that no matter what happens in the big economy, their business is fundamentally strong enough to weather down periods. Giant take on drinks Coca Cola, for example. For the past 59 years, Coca-Cola has increased its annual dividend. Same goes for Procter & Gamblewhich has increased its dividend for 65 consecutive years.
During that time, both companies have weathered bear markets, recessions and other tough economic times, but have managed to maintain their dividends and increase them.
2. Investors are rewarded regardless of stock price movements
There are two main ways to make money owning stock: selling a stock for more than it paid for, and paying dividends. While the former is the most obvious way, some investors may overlook how much money can be made from the latter. Dividends, which are usually paid quarterly, are one way companies reward investors for holding on to their shares.
Imagine you invest in a dividend aristocrat like 3M, which has paid dividends to its shareholders continuously for more than 100 years and has increased its dividend payout every year for the past 64 years. In the past five years, 3M’s stock price has fallen more than 20% (as of March 29, 2022), but the company has paid more than $28 in dividends per share during that time.
If you bought 10 shares of 3M stock at $191 in March 2017 and held those shares up to their current price of $152, you would have $390 in unrealized losses but earn more than $280 in dividends. If you’re a long-term investor, those short-term unrealized losses shouldn’t bother you as much because good, well-established companies find ways to prosper in the long term; An unrealized loss is only a waste of money if you decide to sell your investment. If the price goes back up by whoever bought it, those dividends become pure profit.
3. They can help you earn thousands in annual retirement income
Using dollar cost averaging and making consistent investments in Dividend Aristocrats can prove to be a reliable source of retirement income. Let’s imagine that for the next 30 years you buy two shares per month of each of the three stocks listed above. Here’s what you can expect to be paid annually in dividends on your total holdings:
|Company||Own actions||Annual dividend per share||Annual Dividend Payment|
|Procter & Gamble||720||$3.24||$2,332.80|
While these figures are based on each company’s fiscal year 21 dividend payouts, the total would likely be higher in a real-world scenario because part of being a Dividend Aristocrat is increasing your dividend payment every year. Even in the example above, it results in more than $7,860 in annual dividend payments. Combined with potential 401(k) plan withdrawals and other sources of retirement income, such as Social Security, this could help ensure financial security in retirement.
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