My dad is earning a few percentage points on his fixed-income yields. Fortunately for him, that’s sufficient to live on when combined with his monthly pension and savings. He has no mortgage and lives a pretty normal, but somewhat frugal life.
In fact, Dad has always favored the fixed-income market for his investments as he doesn’t like risk. But for many Americans, the need for an ample flow of income during your retirement is a necessity for surviving, especially if the Great Recession wiped out your 401(k).
With the 10-year bond yield languishing below three percent, it would be difficult to live on this income, unless you have sufficient bond holdings or other avenues of income, like my dad’s pension. Having a more frugal or cost-conscious lifestyle also helps for many in retirement.
Yet the one area that I feel has been extremely positive for investors over the past five years is the dividend paying stocks that provide far higher yields and preferred tax treatment versus bonds. My dad may not be open to dividend paying stocks, but it makes sense for many other investors.
In reality, the Dow Jones and dividend paying stocks have returned some impressive capital gains and income over the past years. I expect this to continue in the current investment climate, where the stock market is favoring less risk.
Take a look at the Dow Jones Industrial Average (DJIA), which is slightly in positive territory, but at the same time, laying out income via dividend paying stocks.
The income stream has also been inviting with the average dividend yield on the 30 Dow blue-chip dividend paying stocks currently sitting around 2.67%. (Source: “Dividend Yield for Stocks in the Dow Jones Industrial Average,” indexArb web site, last accessed June 11, 2014.)
The focus on more conservative investments so far in the first half of the year has rewarded holders of dividend paying stocks, especially given the low comparative yields offered by bonds.
The top-five dividend paying stocks at this juncture, based on their dividend yield, include AT&T Inc. (NYSE/T), Verizon Communications Inc. (NYSE/VZ), Pfizer Inc. (NYSE/PFE), Chevron Corporation (NYSE/CVX), and General Electric Company (NYSE/GE). But be warned that the higher yields may have more to do with the company’s prospects than the quality of the company.
At the end of the day, you cannot go wrong if you stick with the proven blue-chip dividend paying stocks in the DJIA, which have long proven to be the “Best of Breed” within their sector.
Top blue chips include The Boeing Company (NYSE/BA), General Electric, Johnson & Johnson (NYSE/JNJ), The Coca-Cola Company (NYSE/KO), McDonalds Corporation (NYSE/MCD), The Procter & Gamble Company (NYSE/PG), Wal-Mart Stores Inc. (NYSE/WMT), and Exxon Mobil Corporation (NYSE/XOM).