As mentioned previously, the reason for the low yield is the fact that not all companies pay dividends and the fact that several of the ones that do, distribute small amounts of earnings.
When you look at the annual returns since 2000, one could see that annual returns have ranged from a 26% increase in 2003 to a 38% decrease in 2008. One fact that illustrates the allure of dividends is that investors kept getting paid for holding
on to their stocks. In fact, the reason why so many investors are increasingly embracing dividend investing is the fact that they are receiving a positive return on investment every year, no matter where the market goes. With the right selection criteria in mind, investors could easily designate a portfolio that provides a sufficient stream of dividend income to meet their expenses in any market environment, without having to sell shares.
A sample portfolio of 30 dividend growth securities, representative of the ten sectors that comprise S&P 500, which is built over time, could provide a very good entry yield in the range of 3% - 4%. In addition, this portfolio would likely generate higher dividend payments each year, as the companies in it raise distributions annually. A few starter companies fitting this purpose, which are also core holdings of many dividend growth investors include:
Abbott Laboratories (ABT
) engages in the discovery, development, manufacture, and sale of health care products worldwide. This dividend aristocrat
has raised distributions for 40 years in a row. The ten year dividend growth rate is 8.70% per annum. Yield: 3.30% (analysis
The Coca-Cola Company (KO
), a beverage company, engages in the manufacture, marketing, and sale of nonalcoholic beverages worldwide. This dividend king
has raised distributions for 50 years in a row. The ten year dividend growth rate is 10.10% per annum.