Millionaire Mob on Dividends as Retirement Income


I havent spend much time talking about investments, but this is a shame because investing is what I do with nearly all of my cash. My goal is to keep less than $20,000 in USD at a time. Take a look at Blake’s strategy at maximizing dividends. – Michael

Become A Partial Owner Of A Company

Dividends are returns you get on stock purchased of a company. When a person buys stocks, they basically become a partial owner of the company. Thus, when the company earns profits, the partial owner gets paid part of those profits.

The way stock-holding companies work is one of these two:

  1. Re-investing the profits back into the business, leading to a rise in stock value
  2. Paying out the profits to the stock-holder in the form of dividends

Simply put, dividends are the company’s profits, and as dividends are paid per stock, the more the number of stocks owned, the higher the dividends paid. This also implies that the higher the profits earned, the higher are the dividends paid out.
Stock, however, needs to be owned before the ex-dividend date if dividends are to be paid out to the stockholder. This date is set by the stock exchanges and not by the company itself. As a stockholder, you would need to buy your stocks on or before the ex-dividend date to be eligible for dividend payouts.

Dividends as a Retirement Income

Carefully invested stocks can lead to a comfortable nest egg that can support a person through their retirement age. To build upon this, there are several ways you can ensure that the payouts will keep coming.

  1. Investing in a company which has a steadily increasing trend of dividend pay-outs can form a retirement income that keeps pace with steadily rising inflation. To get a list of companies which have historically paid out increasing dividends over the years, you could refer to Dividend Aristocrats. This is a list of publicly traded companies that have maintained a policy of regularly increasing dividend payouts at every few periods and can be found on the Standard & Poor’s (S&P) Dividend Aristocrats page.
    This is a comforting deal for persons who are not ready to invest in high-risk stocks, and yet have the security of assured quarterly pay-outs.
  2. A stockholder may also choose to purchase stocks which offer high dividend payouts, rather than those which offer steadily increasing payouts. This is made easier by websites which do the complicated work of screening high-dividend paying stocks for you. By referencing and researching these sites, you can invest in higher pay-outs which can help build up a nest egg.
    In the short run, this is a safer bet than relying on an annually increasing dividend income.
  3. A stockholder may also invest in a dividend income fund rather than buying individual dividend paying stocks. In this manner, you would own many stocks, each of which would pay out a small dividend. The dividends of all these stocks are then collected and paid out at the end of each quarter.
    Such smaller stocks own a lower risk of losing their basic value, and by owning several such small stocks, you are still assured a comfortable dividend pay-out.

A Word of Caution

It is pertinent to be careful when investing in stocks. If you choose stocks only for their high payouts, you would run the risk of buying stock from a company that is in trouble. Typically, the dividend payout of a company appears to have increased when it is in trouble because it is compared to the lowered stock value.
A company that is in trouble could lower its dividend payout at any time due to lowered profits, dragging its stock value down with it. If you are not good at screening such stocks, you would be safer sticking to a stock fund that has previously worked for you. You can find our undervalued dividend growth stock screener criteria here.

Here are a couple of Dividend Aristocrats to Buy Now

#1 Dividend Aristocrat to Buy Now: Aflac (Ticker: AFL)

We’ve covered this Dividend Aristocrat before and we continue to love the prospects of investing in Aflac (Ticker: AFL). Aflac recently went for a 2:1 stock split on their shares. I love investing in stocks post-split as they typically outperform. I don’t know why since stock splits are purely cosmetic. That is not the only reason why I like this Dividend Aristocrat. We also like Aflac for the following reasons:

  • Earnings per share increased ~6.2% in 2017 to $3.45 earnings per share from $3.25 earnings per share in 2016. After adjusted for the stock split, this reflects that the stock is currently priced at an approximate 13.3x price to earnings ratio.
  • For 2018, management expects earnings per share in the range of $3.72 to $3.88 earnings per share, which reflects an increase of 7.8% and 12.5%, respectively. This would imply a forward price to earnings ratio of 12.3x to 11.8x. Not too shabby for a Dividend Aristocrat.

#2 Dividend Aristocrat to Buy Now: Medtronic (Ticker: MDT)

Medtronic is a medical device company with headquarters in Dublin, Ireland (for tax purposes that was unnecessary now that the tax bill has been implemented). However, Medtronic’s operational headquarters are in Fridley, Minnesota. Medtronic is among the world’s largest medical equipment development companies. Medtronic employs over 85,000 people and has more than 53,000 patents (talk about an economic moat).
We love Medtronic as an investment in a Dividend Aristocrat because the dividend is extremely safe with no signs of a dividend cut. In addition, in light of recent volatility in the stock market, we believe that Medtronic is very sheltered to recessionary conditions. Their products are in high demand and the pipeline looks strong. Medtronic was actually able to increase their earnings per share during the Great Recession. We also like the valuation for Medtronic:

  1. The company is expected to report adjusted earnings-per-share of about $5.50 in fiscal 2018, which represents a price-to-earnings ratio of ~14.5x. This represents a valuation close to the 10-year average price to earnings ratio.
  2. While the valuation looks fairly value, we think Medtronic has substantial room to increase earnings over the next five years.

To sum up on dividends as a tool for retirement income, it is important to remember that investing in stocks is always a risky matter. Stock values are never steady in the share market and will sway as the company functions. And therefore will the income vary. We’re always happy to provide you an introduction to credit card manufactured spending. Try it out some time. This will allow you to save some more cash to invest in your dividend portfolio!

But if you stick it out, the dividend income will be worth the perseverance.
Author Bio: Millionaire Mob is a blog focused on things that we truly enjoy: Travel Photography, Travel Rewards, Passive Income, Dividend Growth Investing and Personal Finance advice. I hope to provide the best advice to help you learn and grow along the way. Join the mob of financial freedom experts and escalate your life. Follow us on Twitter @MillionaireMob2 or Instagram @millionaire.mob!