In 1934, Benjamin Graham & David Dodd wrote, “The prime purpose of a business corporation is to pay dividends to its owners.” Numerous financiers agreed, expecting stocks to pay higher dividends than bonds to offset stocks’ additional risk.
However, by the 1990s, investors’ interest in dividends had dried up. With the market rising 20% to 30% or more each year, and some individual stocks much faster than that, 2% or 3% dividend yields were genuine yawners. They did not play a role in most investors’ stock selections.
Times change. The bull market from 1982 to 2000 is history. So is the tech-telecom bubble of 1997-2000 that topped off that longest bull run in market history. The bubble deflated, leaving investors who hung on with 90% or more losses. Those losses have still not been comprised. They will not be comprised within much of our lifetimes.
Whereas at the height of the bubble in 1999, the earliest boomers were 53 years old, accumulating money as quickly as we might for retirement– now we are in 70’s. Thousands of boomers per month are retiring, taking packages, or otherwise ending their routine working lives.
And guess what? With retirement comes an interest in earnings! Retirees suddenly end up being less interested in two-baggers (a stock that doubles) than in pleasing their everyday cash requirements. For most boomer senior citizens, these needs are fulfilled through 3 sources:
Pensions. Numerous (not all) boomer senior citizens have traditional pensions. Their number will dwindle each year because numerous businesses that used to offer conventional retirement plans dropped them and continue to drop (or freeze) them as we speak. Individuals at the leading edge of the boomer generation are more likely to have standard pensions than people at the routing edge. (The latter were born in 1957, now 49 or 50 years old).
Withdrawals from accumulated savings. Authoritative guidance is to restrict these to 4% annually or two, or else you will outlive your cash.
Dividends! Suddenly, that 2% or 3% that looked like a scrap in 1999 has some attractive qualities. If a boomer has saved, state $500,000, a 3% yield kicks out $15,000 each year. Not a fortune, but a good portion of numerous boomers’ income requires in retirement.
Let’s evaluate this so far. Let’s say that a boomer who is already retired receives a pension of $25,000 each year and also that they take a drawdown of 4% of $500,000 savings, which equals $20,000 more annually. That’s $45,000 each year total. An additional postulate is that this retiree requires $60,000 per year to live a great way of life. As we have currently seen, if the boomer’s $500,000 in savings kicks out a 3% yield, that’s where the additional $15,000 will come from.
So suddenly, a 3% dividend yield looks magnificent and intriguing. It is the difference between a comfortable and uncomfortable retirement for our boomers. And boomers are displaying an increasing appreciation of previously scorned dividends.
I have a ringside seat on the explosion of interest in dividends and earnings.
Tere is a growing research study that, over the long term, dividend-paying stocks create the very best overall returns. So the dividend-stock investor benefits in two ways: They get an essential earnings stream, and the stocks carry out a much better total. And there is yet a 3rd advantage: Many dividends are taxed at 15%, which is lower than many investors’ marginal tax rate. Therefore, dividends are the most tax-advantaged type of income you can have.
The lesson for financiers, particularly those needing income in retirement, is this: Make sure that your portfolio has dividend-paying stock such as dhi dividends sock
With the market increasing 20% to 30% or more per year, and some individual stocks much faster than that, 2% or 3% dividend yields were real yawners. Suddenly, a 3% dividend yield looks mighty fascinating. And boomers are displaying increasing gratitude for formerly scorned dividends.
Investors browsing on Google are showing a disproportionate interest in dividends and income
