Resolve to Add More Dividends to Your Portfolio in 2013
Well, here it is -- the end of the year. You're another year older, which may result in some changes to your hairline or waistline. It may also result in some changes to your portfolio. As we get closer to retirement, we should think about adding more dividend-paying stocks to our portfolio. And even if we're still 30 years away from retirement, dividend stocks could serve us well.
There are two features of dividend payers that make them great for retirement or pre-retirement portfolios. The first is obvious: income. As you leave the workforce, you'll find that you miss that regular paycheck, and for most of us, a Social Security check won't be enough. Sure, we can sell off bits of our portfolio over time to generate funds. But having stocks that kick out dollars to us automatically is even handier. If you've built a portfolio worth $300,000 and you're collecting a 4% annual yield on that, it will amount to $12,000 per year.
The other advantage of dividend payers for older investors, who tend to be more risk averse, is that they are generally more stable than non-payers. It makes sense if you think about it: Once you initiate a regular dividend payment, you want to keep it up over the years and even increase it. Thus, companies that pay dividends tend to be bigger, more established companies that generate relatively reliable income.
How safe is "safe"?
With interest rates still very low, "safe" spots for your long-term money aren't going to help it grow much. According to the folks at Bankrate.com, the average interest rate nationally for a five-year CD is just 1.4%. That's not a rate on which to build a comfortable retirement. There are gobs of very familiar companies, ones I think you'd agree are relatively safe, that offer yields significantly higher than that. Here are just a few examples:
- Boeing : 2.6%
- Coca-Cola : 2.8%
- ExxonMobil : 2.6%
- McDonald's : 3.4%
- Procter & Gamble : 3.2%
Odds are, you could sleep pretty soundly if you had a lot of money resting in some of the above stocks. (Remember, spreading out your eggs among several baskets reduces risk.)
There are hundreds of attractive dividend payers out there, many paying even more than the companies above. Below are a few you might want to consider for your portfolio:
5-Yr. Avg. Annual Dividend Growth Rate
Corning has the lowest dividend yield out of the bunch, but it's also been growing that payout the most aggressively. The company, which traces its origin to before the Civil War, is more dynamic than many typical blue chips, as it's very much a high-tech company, producing glass for LCD displays and smartphones and fiber for telecom networks, among other things. Demand for its Gorilla Glass is strong, and its new flexible Willow Glass is also promising. The stock's valuation looks attractive, and it doesn't hurt that there has been some strong insider buying, too.
Intel is even more of a technological giant, dominating the chip business. Last quarter, it lowered its near-term projections, citing factors such as weak PC sales, slower growth in emerging markets, some customers cutting back on inventory, and various macroeconomic factors. Still, there's a lot to like in the company, such as its recent news of cutting energy consumption in its chips by 41%. It looks undervalued as well, with P/E, price-to-sales, and price-to-cash-flow ratios all well below five-year-average levels.
National Grid is a utility giant, with extensive operations in the U.S. and the U.K. It's investing in clean energies, which is promising, but its revenue growth has taken a turn for the worse recently. Its focus in the U.S. is in the northeast, which isn't growing as briskly as, say, the south -- but growth in the U.K. is much more promising.
Seaspan, operating a fleet of container ships, is poised to benefit from the inevitable global economy recovery, which will see more goods being transported around our planet. It also sports significant insider ownership, with insiders picking up more shares lately. Don't be fooled by the negative dividend growth -- the dividend did get chopped back in 2009, but it's been growing briskly since then. Its earnings have moved up sharply recently, too, which will lower that steep payout ratio.
Finally, Waste Management is a giant in the critical garbage and recycling business, and its recycling activities in particular hold a lot of promise. Converting waste into energy is a win-win proposition, benefiting the company as well as society. The stock seems more fairly valued than undervalued, so perhaps just keep an eye on it, or buy into it in chunks over time. Some would also like to see it growing a little faster, despite weakness in the U.S. economy and many cash-strapped municipalities.
So go ahead and consider adding some more dividend payers to your portfolio. And don't worry too much about any "fiscal cliff" effects on dividends. Even worst-case scenarios aren't likely to be too bad.
The article Resolve to Add More Dividends to Your Portfolio in 2013 originally appeared on Fool.com.Longtime Fool contributor Selena Maranjian, whom you can follow on Twitter, owns shares of Corning, Intel, Coca-Cola, McDonald's, National Grid plc (ADR), and Procter & Gamble. The Motley Fool owns shares of Corning, Intel, McDonald's, Seaspan, Waste Management, and ExxonMobil. Motley Fool newsletter services recommend Corning, Intel, Coca-Cola, McDonald's, National Grid plc (ADR), Procter & Gamble, Seaspan, and Waste Management. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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