5 Reasons to Invest in Dividend Stocks for Retirement

Dividends may not be the only path for an individual investor’s success, but if there’s a better one, I have yet to find it. — Josh Peters 

As Mr. Peters suggested, there can certainly be other routes to riches, but there’s a strong case to be made for getting there via dividend-paying stocks. Here are five reasons to consider keeping some — or much — of your portfolio in dividend payers.

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1. Solid, dependable companies

If you stick with dividend payers, you’re more likely to be investing in solid, dependable companies. That’s because a company isn’t likely to initiate a regular dividend unless its management is fairly certain that it will be able to pay it regularly. Companies facing challenging times may indeed reduce, suspend, or eliminate dividend payouts, but they will try hard to avoid that, as it looks bad and displeases investors.

Thus, it’s generally more mature companies that offer dividends — companies that have excess cash to offer shareholders. Younger, more rapidly growing businesses will tend to need every dollar they earn to reinvest for further growth.

2. Dependable income

As suggested above, companies that pay dividends tend to do so very regularly — the most common frequency is quarterly. Some companies pay dividends every month, and some pay every six months or less often.

Being an investor in the stock market means expecting volatility and seeing your holdings’ prices fluctuate. Sometimes they will even stall or sink for a while, and some simply crash. But most or all of your dividend-paying stocks will still keep paying their dividends, no matter whether there’s a recession afoot or whether the market is booming.

Let’s say that you have a $300,000 portfolio with an overall dividend yield of 4%. That should kick out about $12,000 in cash to you every year, amounting to about $1,000 per month. If you’re still working, earning, and investing, that’s an extra $12,000 per year that you may be able to plow into your retirement portfolio. If you’re already retired, that’s $12,000 to help support you.

3. Increasing income

Better still, dividends tend to increase over time. Many companies increase their payouts every year. Those that have done so for at least 25 consecutive years are referred to as “Dividend Aristocrats,” and you can bet that a company on that rather small list will want to stay there by continuing to hike its dividend.

Here are a few familiar names with their recent dividend yields and their dividend growth rates: