When you think of a “retirement” stock, certain things come to mind. Retirees need income, so their portfolios tend to be chock full of dividend stocks. They also tend to prefer stable, established companies over new and unproven up-and-comers. Growth is important, but safety and stability are more important. Leave the flashy growth stocks to the kids.
The outperformance of dividend stocks is not random. Paying a dividend forces company management to be more disciplined. Every dollar paid out to investors is a dollar that isn’t retained in house, so management is forced to prioritize and, ideally, eliminate value-destroying empire building via acquisitions.But while we tend to think of retiree stocks in this light, investors of all ages would be smart to take the same balanced approach. After all, value stocks have massively outperformed growth stocks over time, and dividend stocks outperform their non-dividend-paying peers … and with less volatility to boot.
Furthermore, in investing you win by not losing. By limiting your portfolio to dividend stocks, you immediately exclude younger and unproven companies — or those most likely to spectacularly blow up.
The safest dividend is the one that was just hiked. If management was confident enough to raise the dividend, it generally means that company is bringing in ample cash for future dividends. So, by further limiting your list of dividend stocks to those with a good recent history of raising the payout, you better increase your odds for outperformance.
So, today we’re going to take a look at five dividend stocks that would be every bit as appropriate for a young investor just starting to save as for a retiree living on the golf course.
I’ll start with Microsoft Corporation (NASDAQ:MSFT). It wasn’t that long ago that Microsoft looked like a has-been on the slow road to irrelevance. The company missed the mobile revolution completely, leaving Apple (NASDAQ:AAPL) and Alphabet (NASDAQ:GOOGL) to make it a two-horse race. PC sales — which ultimately drive Windows licenses — have been in decline for years. With more and more computing happening on mobile devices, Microsoft appeared to be doomed.
But then, along came Satya Nadella, who upon taking over as CEO in 2014, refocused Microsoft as a cloud services company that is now rivaled by only Amazon.com (NASDAQ:AMZN), AWS.
That’s the beauty of Microsoft. Its businesses were strong enough to survive more than a decade of unimaginative leadership under Steve Ballmer.
Nothing is permanent in technology, of course. But some trends last at least as long as the average retirement. For example, the “PC era” as we think of it lasted a good 20 years. The “mobile era” has been going on for over a decade now and shows no sign of slowing down. I have no reason to believe that Microsoft’s cloud business doesn’t have a long, profitable life in front of it.
And in the meantime, Microsoft will continue to be a dividend-paying machine. Over the past 10 years, Microsoft has grown its dividend at 15.7% annual clip. And any shares of Microsoft you might have bought a decade ago now trade at a yield on cost of nearly 7%. (Yield on cost is today’s dividend divided by your original purchase price.) That’s something that should be exciting for any investor, regardless of their stage of life.
To see the remainder of the list, go to 5 Versatile Dividend Stocks No Matter Your Age
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