Bigger Yields from Dividend Paying Stocks
Dividend-paying stocks are an income stream that the senior can use to increase the diversity of his or her portfolio and strengthen funds for retirement. These types of investments both have their own advantages and disadvantages which is compared to the average stock earnings, you can generate relatively larger gains if you pick your stocks and industries correctly, although these are still subject to the conditions that influence the rest of the stocks in the entire market.
Typically, the average returns stock market investors receive from companies within the S&P 500 are about 2.5%. Although these gains do not seem like much, they are hardly indicative of stocks from other relatively isolated sectors such as healthcare, utility companies, and telecommunications firms like stocks purchase from these industries can give you gains ranging from 3.3% to upwards of 6%.
2009 may have been a record-low year for dividend performance, but things are looking up for these investments.
That same year, S&P companies reduced investor payouts by about $40 billion after lowering dividends. 2010 only saw four companies from the same group reduce dividends, while overall investor earnings shot up by around $17 billion. While many analysts say that it is still a far cry from the years before 2008, the going is looking good.
The downside to dividend-paying stocks is the possibility of tax increases. If the tax cuts implemented in the Bush years expire as expected by 2011, dividends may be taxed as ordinary income at 39.6%, compared to the rate today of 15%. However, dividends are still going to attract investors (including those in the upmost tax brackets) because of the low interest bonds pay out. Seniors who place a huge chunk of their assets into these kinds of stocks also take on more risk due to volatility as they rise and fall with the market. Because these stocks drop as the market does, stockholders should check their asset allocation and ensure that their portfolios do not exceed risk levels manageable to them. For example, utilizing more income from equity virtually requires that the investor put more money into bonds to offset the extra risk.
Picking up more dividend-paying stocks for your retirement portfolio can be a good thing, as long as you maximize returns by choosing stocks from comparatively unpopular yet emerging sectors. However, do not buy into too much of these investments in comparison to the contents of your entire portfolio as this could result in a portfolio imbalance that could make losses hard to bounce back from.
About the Author:
Katherine Smith is an author who specializes in financial topics concerning seniors. Puritan Financial Group gives seniors expert advice and investment. For more information on how Puritan Financial Group can help you, please visit our website at http://www.puritanlife.com.
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