We’ve been riding the waves of a strong stock market and scorching hot housing market for several years now. Our investments are split roughly 50-50 between stocks and houses, and throwing more money at either isn’t all that appealing, especially with a probable recession looming.
What’s a financially independent cubicle junkie to do? Well, I’ve taken on the unthinkable – investing in a few individual stocks — stocks that yield high dividends. Oh, and we picked up some I-Bonds too.
Why Dividend Stocks?
Based on all of the research I’ve done so far, stocks that yield higher dividends tend to be companies that have been around a long time. They’ve established an operating model that keeps them profitable and able to return a portion of those profits to shareholders in the form of dividends.
So, a stock that comes with a 4, 5, 6, 7 percent or higher yield means you’re gaining a relatively consistent return on your investment (as with real estate rentals). Generally, from my novice’s perspective, the higher the dividend yield offered, the more stagnant the stock price itself. Contrast that with low or zero dividend stocks, which are growth-oriented and can yield tremendous returns from their ticker price alone.
Ultimately, I figured wading into dividend stocks would diversify our portfolio even further. We have a small amount of money in bonds and cash but neither of those generates much yield these days. Though rising interest rates are beginning to make savings slightly more attractive.
The Stocks We Picked
With a little bit of research, I landed on a few stalwarts. Some are referred to as Dividend Kings or Dividend Autocrats. These are the pick of the litter for dividend stocks. The Autocrat list includes reliable investments that have offered a dividend for a few decades or longer and have also raised their dividends over time. Definitely a good place to start for newbie dividend stock investors.
Here are our picks, and their respective dividend yields:
- IBM: 4.65%
- AT&T: 5.29%
- American Electric Power: 3.33%
- Pfizer: 3.10%
- Realty Income Corp:4.29%
- Walgreens Boots Alliance: 4.59%
- Verizon: 5.02%
- UnitedHealth Group: 1.33%
I think the basic intent in picking up shares in these stocks is somewhat of a hedge against a market that’s been overheating for an extended period. If we can reliably capture a return of between 4-5% during a downturn, we’ve offset some of the losses in our index fund portfolio.
What About Inflation?
With inflation hovering near 8% these days, what good is a 4% yielding dividend stock? It’s a matter of how long you hold onto these investments. We’re buy-and-hold types in this household. We expect (er, hope?) inflation to return to modest levels well before we plan to sell any of these stocks.
There’s also the matter of what effects inflation will have on our household. We drive a lot less these days and I’ve become a telecommuter since the pandemic unfolded over two years ago. We eat a vegetarian diet at home. Granted, fruits and vegetables are almost as inflated as meat and poultry of late, so I can’t claim to be immune to any of it.
Natural gas is bonkers thanks in part to the Ukraine conflict, and we should all hope and work to end that madness before winter returns. Again, this too shall pass. Keep your dollars working for you and others.
A final note on inflation, check out my post featuring OnTrajectory and learn about other ways you can mitigate the crazy. It’s not all doom and gloom.
What About Investing In Series-I Savings Bonds?
Thanks to the current inflation spike we’re living through, other reliable investment options are coming to the fore you might not have considered. The US Treasury is offering Series-I Savings Bonds through its website. Individuals can purchase up to $10,000 of bonds per calendar year.
That’s not a huge mountain sum of cash, but it’s pretty darn healthy. A couple could purchase $20,000 and more for their children or dependents. What makes the I-Bonds so appealing is the yield of 9.62%. Not too shabby, and all thanks to the current inflation spike.
As a bonus, any I-Bonds used for education expenses avoid federal taxation. In addition to a 529 savings plan, these savings bonds, at nearly 10% interest, are an excellent complement to a college savings plan. I would strongly suggest (as does Suze Orman) getting in on this action.
IS Dividend Stock Investing Worth It?
That’s a question perhaps worth an entire post all on its own. I would argue “yes” but a qualified “yes” at best. If you haven’t paid off the big stuff like student loans, home mortgage, and credit card debts, then avoid this path. Stick with the tax advantage accounts that matter most for now: Your 401K and HSA.
I would however urge anyone with $100 to $10,000 to explore the US Treasury Savings Bonds. Now’s as good a window as any to turn lemons into lemonade with this inflation madness.
Once financial independence is achieved, have a look at dividend stocks. See what companies show promise for long-term and sustainable yield. We chose to reinvest our dividends into additional stock, but many dividend investors use their portfolios to provide a steady stream of income.
Please share in the comments any experience you have with dividend stock investing. All for now!