brown on green, A Regular column about finances

by David Brown

Your Father's Little Dividend

“Dividend investing makes a comeback”

Back in the 1950s, most people who invested in the stock market considered the dividend yield rather than potential for growth. The investing landscape changed in the 1980s when new retirement investments became available that allowed investors to defer the taxability of their investment earnings. This change shifted investors from looking for income to growth through capital gains.

Another factor responsible for this change was that Baby Boomers became interested in investing for the first time. This generation has caused huge economic shifts as they move through the demographic pipeline. This shift is the reason dividend stocks will make a comeback in the coming decades.

Now that Boomers are reaching retirement age, their stock investing philosophy has changed from growth, growth, growth in their 30s, 40s and 50s to steady income for retirement. The steady income they are seeking will be found in dividend stock. Dividends have been around for a long time, dating to the Dutch East India Company in 1602, the first company to issue dividends to investors.

Putting together a stock dividend portfolio is not just a matter of gathering a list of the highest paying dividend stocks and buying the list. Many factors have to be considered when choosing your portfolio. First, consider how many years the company has been paying dividends. Some companies have been paying dividends for more than 50 years. In most cases, you will only want to consider a company that has a track record of ten years or more.

It’s also important to consider whether or not stocks have been steadily increasing their dividend over the years. It is important that the company you are considering is a leader in its industry, and that its earnings outlook for the future is solid. The stocks you consider should have good cash flow. They should pay dividends out of cash rather than borrowing to pay stockholders. The portfolio should be balanced over several industries to reduce volatility. And finally, as a Christian, you should avoid buying “sin” stocks in which the primary industry promotes sinful behavior.

While all stocks have a degree of volatility, good dividend paying stocks are less volatile. One of the main factors that cause a stock to go down in value is when there are more sellers than buyers. Currently, dividend investors are holding on to their stocks, because regardless of what happens to their value, they still pay a good dividend. And because they pay a high yield, they do not want to sell the stock.

More and more companies will announce that they will begin to pay dividends in the near future. Apple recently announced their plans to pay dividends. Other technology companies that previously shunned dividends have also begun to pay. Baby Boomers are driving this trend upward again. A large group of investors are demanding dividends, and companies are responding to the demand. Your father’s little dividend of the 1950s has made a big comeback.

Stocks that have paid and increased dividends annually for 50+ years*

• Diebold Incorporated (DBD) 1954
  

• American States Water Company (AWR) 1955
  

• Dover Corporation (DOV) 1956
  

• Northwest Natural Gas (NWN) 1956
  

• Emerson Electric Co. (EMR) 1957
  

• Genuine Parts Company (GPC) 1957
  

• The Procter & Gamble Company (PG) 1957
  

• 3M Company (MMM) 1959
  

• Vectren Corporation (VVC) 1960
  

• Cincinnati Financial Corporation (CINF) 1961

*These stocks are listed for illustration purposes only and should not be considered a recommendation. Please consult your own advisor as you consider dividend stock.

David Brown, CPA, became director of the Free Will Baptist Foundation in 2007. Send your questions to David at david@nafwb.org. To learn how the Foundation can help you become a more effective giver, call 877-336-7575.