We are hot on dividend-payers compared to bonds.
This year,we added shares in seven dividend-paying companies: AT&T (NYSE:T), Chevron (NYSE:CVX), Cisco Systems, Coca-Cola , General Electric,McDonald’s and Procter & Gamble. Three of the stocks’ prices have risen in the market this year, while four have dipped as much as 2%. Together, this year the group has averaged a 1% gain.
But the bigger reward: After Jack A. Bass Managed Accounts bought their stocks, several companies raised their dividends — a fetching 9.2% average. Retirement accounts now hold 14 dividend payers and may get more this year. “Given the inflation factor, it’s a good strategy to have increasing income,” said the principal of Jack A. Bass and Associates “And as a bonus, you get a more favorable tax treatment on stock dividends than on the interest from bonds.”
Clients of Jack A. Bass Managed Accounts (these are models – our clients are better looking)
His moves seem to buck conventional wisdom — that those planning or in retirement should shift to such “safer” investments as bonds. But amid today’s longer life spans, some market players are embracing a newer view: that retirees should keep sizable stock allocations — tilted toward dividend-payers with their potential for stock price gains and dividend income growth.
“There is literally a danger of outliving your money if you can’t generate enough income from your portfolio,” holds investment adviser Laurie Itkin, of Coastwise Capital Group in San Diego, Calif. Indeed, she feels “the typical asset allocation model of 40% bonds, 60% equities is archaic and even dangerous.”
Bass likes the dividend-growth story he’s been seeing. Among the shares he bought, Cisco Systems (NASDAQ:CSCO) this year raised its dividend 11.8%, and Coca-Cola (NYSE:KO) boosted its payout 8.9%. He’d bought such stocks for the safety their strong corporate management provides — and for their dividend yields in excess of 3%.
Too Rich To Switch?
“With dividend payers like these, you think harder about shifting your asset allocation to more heavily favoring bonds, even after interest rates rise,” Bass said. Overall, fully 1,078 U.S. companies raised their dividend in this year’s first quarter — the highest number for any first quarter, says Howard Silverblatt, senior index analyst at Standard & Poor’s Dow Jones Indices (SPDJI), in New York. Moreover, dividends paid by companies in the S&P 500 stock index could hit a record $350 billion this year, he says. However, dividend-paying stocks weren’t the rage early this year. And dividend cuts are always possible: In July 2009, at the peak of dividend-trimming in the last recession, 83 S&P 500 companies were cutting their dividends, while 26 others were suspending them, according to SPDJI data.
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