be_ixf;ym_202004 d_06; ct_150

Select Page

Forget Bonds … Look Here for Income Instead

Forget Bonds … Look Here for Income Instead

What a daunting time to face retirement! The S&P 500 Index has plunged nearly 19% in just 13 trading days.

At the same time, investors have flocked to the safety of Treasury bonds, sending the yield on the 10-year to just 0.50%. That’s the lowest level ever, as shown below.

And yet, around 10,000 baby boomers are hitting age 65 every day. This is now the fastest-growing segment of the population (as I wrote about recently here).

The key to a comfortable retirement is to take withdrawals for years to come without running your nest egg down too quickly. So, you need to create a portfolio that generates income and a little growth.

For growth, stocks have historically been your best bet. They’ve averaged a return of 8.75% over the last 50 years. But if the last few weeks have taught us anything, it’s that stocks can come with bouts of volatility.

High-quality bonds are usually a good spot to park your money for stability. But right now, they hardly offer any yield.

Savings accounts pay 0.09% on average. If the Fed slashes rates more, they could even get worse.

So where can retiring investors find both income and growth right now?

Over 8 Times More Income!

For safety, growth and income, consider stocks of high-quality, dividend-paying companies. Here’s what to look for:

  • Balance sheet health, with a low debt/equity ratio. A company has more money to pay shareholders if there aren’t many creditors in line first.
  • Profitability, such as the gross profits/assets ratio. I’m a huge fan of understanding how efficiently a company uses its asset base to generate profits.
  • Payout ratio, which is the ratio of dividends paid to net income. A low ratio means that a company has a better chance of sustaining its dividend, even if profits take a hit.
  • Sales and earnings stability. In general, companies that pay a good dividend rate have stable end markets … think real estate investment trusts, utilities or consumer staples.

Once you have pinpointed high-quality companies, stock market pullbacks like this are a gift. You can grab a higher dividend yield on your investment — that’s how much dividend payments you take relative to your purchase.

Take the iShares Select Dividend ETF (Nasdaq: DVY) for example. This exchange-traded fund (ETF) generated a dividend yield of about 3.42% (using the last 12 months of dividend payments) to start 2020. Following the pullback, DVY now yields 4.26%.

This is the highest level in over 10 years, and over eight times the yield on a 10-year Treasury!

If you’re not already doing so, you should have a shopping list of high-quality, dividend-paying companies ready for investment. In this environment, they offer you the best shot for retirement income and growth.

Best regards,

Clint Lee

Clint Lee

Research Analyst, The Bauman Letter

MEET OUR EXPERTS

WHAT READERS ARE SAYING..

I am up $20,070 in closed positions from Feb. 18 through March 7.

- Bob Rowe

I started your system in December … I am ahead $29,000 … I put total faith in you and your system and it has worked for me very nicely. Thanks again I sure like your humble approach about this whole thing

- Dale Leiffer

I have made a little over $4,000 while being cautious.

- Chuck Goss

Share This