Amidst the Volatility, Dividend Investors Get a Pay Raise
While most people are fretting about market volatility and the China trade war, at Surevest, we are focusing on the things we can control and the issues that impact our client’s long-term wealth. We are just one tweet away from a 10% rally or a 10% decline in the S&P 500. Either way, looking out 5-10 years, that move will be meaningless to your ability to tap into your portfolio as a source of income to fund your lifestyle.
We have spoken before about the importance of building a portfolio that generates sustainable and growing cash flow. One area we love to incorporate into our portfolios, to help achieve that mandate, is dividend growth stocks. Amidst the volatility, we are continuing to find many solid companies, with solid balance sheets, paying income greater than bonds and a history of growing income each year. As a bond investor, if you buy a 10 U.S treasury today, you are locking in a 2.25% yield for a decade. Also, the way bonds are taxed, you could be paying over 40% in taxes on that income. We are finding stocks today that are generating 3%+ yields, and with the qualified dividend tax rate, you only pay about 23% in tax. Today, with dividend stocks vs. bonds, you benefit from both higher payout and greater retained share of that payout post tax. As mentioned, we focus on stocks that will also give you a raise each year, unlike a static return form bond. As a matter of fact, amidst the doom and gloom, one of the most important and overlooked headlines is the amount of dividend increases this year. Global dividends just rose 7.8% YOY to a record $263.3 billion that will be paid to investors! Shifting your portfolio towards these types of investments while others are panicking may make sense.
So, when you compare these types of companies today vs. bonds, we believe the choice is clear, despite the headline risk. To get a current cash-flow analysis of your portfolio please reach out to your personal advisor for an illustration.
Have a great weekend!
Robert J. Luna
CEO & Chief Investment Strategist