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4 Dividend Stocks To Avoid The Social Security Blues

 January 03, 2013 11:49 PM

As a fiscal conservative, the direction of our country concerns me. With the current administration's primary focus on fixing the budget deficit with higher taxes on the "wealthy", rather than a combination of higher revenue AND meaningful spending cuts, our country is left in a perilous situation. I am reminded of the following quote:

"The problem with Socialism is that eventually you run out of other people's money."

- Margaret Thatcher

If you have followed the U.S. Social Security saga over the last several years, you know it is projected to run out of money soon. As it turns out "soon" just may be much sooner than previously expected. To make matters worse, it has been "broke" for some time, but through creative accounting that would land a private-sector CFO in jail, the government has been able to keep the appearance of solvency.

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Here are some important facts about Social Security:

According to the Social Security Administration, in 2011 over 60 million Americans received $736.1 billion in Social Security benefits, making it the nation's biggest social program.

Social Security is transforming from an operation that's helped finance the rest of the government for decade into a cash drain that will need to be fed large sums of cash.

[Related -Coca-Cola Company (KO) Dividend Stock Analysis]

Since 1983, when it suffered a cash crisis, Social Security has been collecting more in taxes each year than it has paid out in benefits. It has used the excess to buy the Treasury securities that go into the trust fund, reducing the Treasury's need to raise money from investors. Put another way, there is no money in the Social Security Trust Fund - just IOUs from the government to itself.

Social Security is a pay-as-you-go program. In 2010, the annual shortfall was $62 billion. That amount is expected to grow each year. It faces a shortfall of roughly 25 percent when the Social Security Trust Fund is exhausted some time around 2036.

Do you really want to bet your retirement on a system like this? I certainly don't. When planning for retirement, my underlying assumption is that Social Security will go broke before I ever receive a dime. Like everyone, I will need an income during my retirement years. I am currently planting the seeds for that income with high-quality dividend stocks that have a long track record of increasing their dividends each year. Below are some blue chip dividend stocks that eventually end up in most income investors' portfolio:
The Coca-Cola Company (KO) is world's largest soft drink company, KO also has a sizable fruit juice business. The company has paid a cash dividend to shareholders every year since 1893 and has increased its dividend payments for 50 consecutive years. Yield: 2.8%

Johnson & Johnson (JNJ) is a leader in the pharmaceutical, medical device and consumer products industries. The company has paid a cash dividend to shareholders every year since 1944 and has increased its dividend payments for 50 consecutive years. Yield: 3.5%

Genuine Parts Co (GPC) is a leading wholesale distributor of automotive replacement parts, industrial parts and supplies, and office products. The company has paid a cash dividend to shareholders every year since 1948 and has increased its dividend payments for 56 consecutive years. Yield: 3.2%

Emerson Electric Co. (EMR) designs and supplies product technology, and delivers engineering services and solutions to a wide range of industrial, commercial, and consumer markets around the world. The company has paid a cash dividend to shareholders every year since 1947 and has increased its dividend payments for 56 consecutive years. Yield: 3.1%

As for Social Security running out of money, people will be paid what was promised since the government can print all the money it needs. However, what was promised may not be enough after inflation, particularly if a lot of money is printed.

Full Disclosure: Long KO, JNJ, GPC, EMR. See a list of all my dividend growth holdings here.



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