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Dividend Growth Is On The Rise

Doug Carey, CFA

Key Points: 

  • Dividend growth is every bit as important as dividend yield for your retirement portfolio.
  • Stocks in the S&P 500 have had a good year so far in terms of increasing dividends.
  • The biggest threat to dividend paying stocks is higher bond yields. 


A Good Year For Dividend Growth So Far

Dividend payers in the S&P 500 index had a pretty good year in terms of boosting their dividends. Over 20% of the companies in this index increased their dividends so far this year. Also of note, not a single company in the S&P 500 decreased their dividends, which has not happened since 2011.

Dividend Growth In 2018

So far, there have already been four companies in the index that have doubled (or more) their dividends. This is already as many as the entire year of 2017.

Rising Bond Yields Are A Risk

Increased earnings last year and the recent tax reform bill have helped companies push for even higher dividends this year. This is all good news. But the bad news is rising bond yields. Because bonds and dividend payers are always competing for investors’ dollars, higher yields take some money away from dividend paying stocks, which usually means prices go down for these stocks.

Bond Yields Vs. Dividend Yields Over TimeBut even with bond yields rising, those who invest for the long run with dividend payers should be very happy. I have shown before that over a long period time the price of dividend payers matters very little. What matters is the constant stream of growing dividends. 

You don’t need a financial advisor to tell you that it is of utmost importance that income covers expenses in retirement. With solid dividend payers, this is exactly what you get. Not only that, but dividend payments are a great hedge against inflation since company revenues generally move with the level of overall prices in the economy. 

Building A Successful Retirement Plan

What we want to see is a high probability of never running out of money in retirement. Growing dividends over time give us a much higher probability of success than hoping for constant price growth in a basket of stocks. 

So do you need $1 million to retire? Is it $2 million? You won’t know until you run your plan through a legitimate planning application such as WealthTrace. How many dividend payers do you really need? Again, we can answer all of these questions with good planning software.

Do you want free tips on how to retire early? How about retiring stress-free? Learn how to make sure you do not outlive your money by signing up for our free articles.

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Doug Carey, CFA