What makes long term investment in diversified portfolio of dividend stocks lucrative for retirement plans?
Time and again dividend funds have proved their mettle with their excellent performance and have even outperformed Standard and Poor index funds or S&P 500. In fact it has been observed they continue to remain stable even when the markets are far too turbulent and unpredictable for non-dividend stocks. Investing in dividend funds are the best way to beat the inflation over the years. That is how one can preserve the real value of the amount invested initially that over and above works harder to offer better returns with the passing of each year, provided of course the dividends have been reinvested without break.
As a matter of fact dividend stocks are a far better option than government bonds that has very little option to keep inflation at bay. Even during the onset of recession as many as 300 of the 500 companies listed in S&P500 raised their dividend pay outs. Even during the heights of recession of 2009 particularly in coveted economic sectors such as health care, energy, telecommunications etc the dividends have actually appreciated.
Characteristics of Best Dividend Stocks
Invest in those companies that you can understand best i.e. leave out those companies that have interest in a vast spectrum of products and projects that makes them far too cumbersome for comprehension. Rather pick those companies that concentrates on one or two similar products, such as Gillette that makes razors and toothbrush. Also make sure the products in which the company deals in has a steady demand that is not affected by recession such as health, food, tobacco and alcohol.
See that the company has sufficient cash flow each quarter, lest it has to borrow from its own reserve to dole out dividends which could possibly prove far too disastrous, as this will not be able to sustain growth and development of the company. Make sure the company is not in debts and it does not have to raise capital from the market too frequently to sustain.
Also do not go for those companies that offer a dividend payout ratio that exceeds 80% in fact its best to go for those that offer 50% dividend payout ratio ( calculated by dividing annual dividends by annual net income). Too much would be a drain on the company revenue that needs to be reinvested for further growth and development.
Invest in ETFs or Mutual Funds for Dividend Stocks
The recent unpredictable market has however taken its toll on many dividend paying company stocks. Because of the adversity in the market the management of many of the listed companies have been forced to drastically slice off or totally stop paying dividends to their shareholders at all. As part of your strategies to invest in high yield dividend paying stocks its best to invest through a mutual fund or Exchange Traded Funds or ETFs. Its prudent that you include in your portfolio at least one mutual fund or ETF that includes dividend paying stocks of those companies belonging to emerging economies such as from countries that belong to the BRIC group, since the dividend yields are even better than those in the US in some cases. The BRIC economy is an acronym for Brazil, Russia, India, China. According to Goldman Sachs the combined economies of those of BRIC would surpass the economic might of the current developed and rich countries of the world. As of now only Mexico and South Korea economy can match that of the BRIC countries.
List of Dividend ETFs for long term investment for high future returns
I have compiled few of the dividend ETFs that might draw your attention and interest for investment. However caveat I must keep you informed that I am in no way trying to endorse them as I do not have a stake in them if you at all invest. I totally leave it to your discretion to pick dividend stocks ETF that best suits your intuition, analysis and many more factors before homing on one of them for future investments particularly if you wish to retire with plenty of funds in your coffers. Well here are they for your perusal:
First Trust Dividend ETFs that includes Dow Jones Global Select Dividend Index Fund (FGD) and Dow Jones STOXX European Select Dividend Index Fund (FDD) .
iShares Dividend ETFs that includes Dow Jones International Select Dividend Index Fund (IDV) and Dow Jones Select Dividend Index Fund (DVY)
PowerShares Dividend ETFs that includes International Dividend Achievers Portfolio (PID) and High Yield Equity Dividend Achievers Portfolio (PEY) .
Claymore Dividend ETFs that includes Claymore/Zacks International Multi-Asset Income ETF (HGI) and Claymore/Zacks Dividend Rotation ETF (IRO)
Well there are plenty of similar ETFs dealing in dividend stocks both international and those in the US. I can only hope that you carefully weigh all your priorities and make a SWOT analysis (i.e Strength, Weakness, Opportunity and Threat Analysis) of all your investment opportunities before taking the big step to fortune.
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Remember trading penny stocks are highly volatile and hence too risky to trade, but then flying aeroplane or driving a car is too. Once you learn and practice you too will find trading in penny stocks fun and easy. So go ahead and build your fortune carefully and never be too over confident with either your intellect or intuition, that would be too disastrous. Always keep abreast of the happenings around and not bury your head in the sand like the ostrich when a storm approaches.Investment is not risky it is the investors who are a risk themselves. Always have control and approach all your problems step by step by learning from the masters of the trade.
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