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3 Retirement Savings Stocks That Consistently Increase Dividends
11/28/2012 11:00:00 AM
Dividend reinvesting is a time-honored method of building wealth. Even whenmarket gains slow down, dividendsoffer regular and dependable income that, when reinvested, quickly ramp up the value of your portfolio.
Dividend reinvestment even makes sense in a falling market. There is an inverse relationship between dividend yields and stock prices. This means when stock prices decrease, dividend yields increase. Reinvesting the increasedyield back into lower-priced stocks creates an automaticcompounding effect that can dramatically increase yourbottom line over time.
Believe it or not, since 1920, dividends have accounted for 40% of the gains booked in the S&P 500. Investors who don't participate in dividend reinvestment miss out on a huge part of the stock market's gains over time.
When it comes to a successful dividend reinvestment strategy, there are three key aspects you should consider.
1. Don't touch your principle
2. Keep your costs low
3. Only invest in companies that historically increase
My colleague Carla Pasternak, the face behind High-Yield Investing , teaches these same concepts. Carla likes to find reliable stocks that regularly increase dividends. She calls these Retirement Savings Stocks is now.
Many investors are concerned about the potential dividend tax increase slated to take place on Jan. 1, 2013. It's still uncertain whether a solution to the country's fiscal problems will be reached by the end of the year, when the automatic tax increases will be enacted. But investors should keep in mind that history has shown that previous changes to the dividendtax rate only have a short-term effect on dividend stocks. Generally, within six months of the tax change, dividend stocks return to their normal valuations. If the worst-case scenario happens and dividendtaxes increase, then dividend-paying stocks will likely still offer superior returns and provide those who live off theirinvestment income with a wiser choice than selling shares and being hit with capital-gain taxes.
And there are many great Retirement Savings Stocks that regularly increase dividends. Here are three of my favorite stocks right now...
1. Aflac Inc. (
2. Abbott Laboratories (
As a point of interest, the company is about to split into a medical products business named AbbVie, while Abbott will continue to focus on medical devices, nutritional products and diagnostics. This split will likely be very positive for the stock price. I focused on the benefits of these types of corporate actions in this article .
3. Eaton Corp. (
Risks to Consider: It's important to remember that nothing is ever for certain in the stock market. Long-time dividend-yielding stocks that appear solid can suddenly stop paying or even suffer steep declines. Always use stops and be sure to position size properly when investing.
Action to Take --> The three stocks listed above are strong contenders for everyone's dividend reinvestment portfolio. And while I won't presume to speak for Carla, I think they fit the bill for Retirement Savings Stocks pretty well. Their proven record of dividend increases and unyielding performance metrics creates a compelling case for each of the companies.