Every investor, but particularly investors nearing retirement or with income needs, ought to consider dividends as part of portfolio construction. Investing in companies that pay dividends offers a degree of safety other pure-play growth stocks can’t. When companies return shareholder value to investors in the form of dividends, it is then possible to measure the payback period one must undertake to be made even by a given investment.
These dividend returns are also much more stable than the volatility capital gains provide over time. In the very long-run, about half of the total market return comes from dividends, with the other half being growth. For those who are nearing or entering retirement, dividends are the safest way to gain exposure to the market and maintain one’s income needs.
Fixed income investments of yesteryear that used to provide decent yields now provide next to nothing. High-quality dividend paying stocks are therefore the way to go right now.
I’d recommend such investors consider companies that focus not only on consistently paying out dividends, but growing these distributions over time. One of the best companies in Canada in this regard is Fortis Inc. (TSX:FTS)(NYSE:FTS).
The company has raised its dividend each and every year for nearly five decades in a row, providing investors with some pretty impressive yields if one invested decades ago and let the investment sit. The company projects high single digit dividend growth in the years to come, though Fortis does have room to raise its dividend at a higher double-digit rate if it chooses to do so.
Invest wisely, my friends.
