Now that the markets are recovering the focus for many has switched from survival to thoughts of retirement. High quality stocks that pay good dividends have always been a major portion of retirement directed portfolios. After last year’s economic disaster when so many supposedly strong stocks lost value the question is just what will qualify as a high quality stock in the post recession world.
The ability to pay dividends is a good measure of a high quality stock. Companies such as 3M, Proctor and Gamble, and Colgate pay dividends every quarter of every year for decades if not more than a century. (Colgate – 1895, P&G – raised quarterly dividends every year for 53 years, including the last year)
These companies have a global presence positioning them for growth in emerging markets and, especially, in the Asian powerhouses of India and China. One of the goals of retirement is to let your money work for you and let someone else do more of the work. In retirement you may travel to parts of the globe where it would be nice to see products of your high quality companies being sold.
How well companies came through the recession is a good measure of how strong, how high quality they are. In retirement you do not want to have to keep changing horses in mid stream. Diversified technology, multinational companies are good bets for the long term.
The “take home” lesson from last year’s market collapse is that leveraging and speculation work in the short term if you are smart and quick. Conservative stock picks in high quality companies that pay dividends year in and year out will serve you well in retirement. In retirement you do not want to wake up one morning and find out that two thirds of the value of your retirement portfolio just disappeared!
As the economy stabilizes and jobs come back we will probably see a lot of the same old hype about companies with huge “growth potential.” The temptation will be to invest the remainder of ones retirement savings in speculative stocks to try to regain losses for the market crash.
If this is your situation don’t forget to diversify your portfolio and, please, leave a good portion of your investments in high quality companies that pay dividends year in and year out.
The nice part of retirement from the point of investments is that you will have more time to follow your stocks. However, the point of retirement is to be able to do the things you never had time for before. Whether you always wanted to hike the Appalachian Trail or sail around the world having your retirement savings in high quality, dividend paying stocks will make your trip more secure and put your mind at ease.
We know that there are companies coming up that will become the high quality, dividend paying stocks of the future. However, in retirement, you want maybe 10 percent of your portfolio in growth stocks and 90 percent in high quality, dividend paying stocks. When you were twenty it was rightfully the other way around. Now, go and start planning that trip to Paris you always wanted to take.