Category Archives: Retirement

The Best 3 Places To Look For Safe Dividend Income

If history gives a hint about the future, it indicates that companies in certain industries tend to generate stable earnings or cash flows that lead to stable dividends.

If we choose the quality companies from these industries, we can then build a diversified portfolio that generates a secure, growing income stream. Below, I list some possibilities.

Utilities: A Must-Own Sector

Earnings generated by utilities are relatively stable because people need to use electricity, gas, and water, etc. no matter if the economy is doing well or not.

One utility that came out strongly from the last recession was Brookfield Infrastructure Partners L.P. (TSX:BIP.UN)(NYSE:BIP). Since 2009 it has been a five-bagger.

Brookfield Infrastructure is a rock solid utility, which owns and operates a global, quality portfolio of infrastructure assets, including toll roads, railroads, ports, pipelines, and telecom towers.

Its trusted management, Brookfield Asset Management (TSX:BAM.A)(NYSE:BAM), employs value investing and actively recycles mature assets for higher returns. Because management owns 30% of the partnership, retail unitholders can expect the management to be unitholder-friendly.

Indeed, Brookfield Infrastructure has increased its distribution every year since 2009. Going forward, it gives the guidance to grow its distribution by 5-9% per year. Currently, it offers a yield of 4.5% to start.

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Retirees: How To Protect The Principal Of Your Dividend Portfolio

There are various things retirees can do to protect the principal of their dividend portfolios. At the stock level, retirees can buy quality businesses with a minimum credit rating of BBB, a strong moat, and a long history of profitability at a margin of safety. Retirees should also ensure their portfolios are sufficiently diversified and build a cash reserve to sail smoothly through market downturns.

Investment-grade rating

Looking at a company’s credit rating is one factor of quality that can be easily checked.

Companies that have manageable levels of debt, good earnings potential, and good debt-paying records will have good credit ratings. – Investopedia

A company rated as BBB or higher by Standard & Poor’s or Moody’s is considered investment grade. The higher the rating, the higher the quality. Retirees can add a layer of safety by investing in stocks that have a credit rating of BBB+ or higher.

Johnson & Johnson (NYSE:JNJ) and Microsoft Corporation (NASDAQ:MSFT) are both awarded the strongest S&P credit rating of AAA.

Earnings or cash flow stability

Depending on the type of the company, you would want to look at its earnings or cash flow history to see how stable its profitability is and if the company tends to grow its profitability over the long run.

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Retirees: How To Generate The Income You Need From A Dividend Portfolio

This article is for investors who are retirees or close to retirement.

Ultimately, most retirees want safe income – cash they can use every day to pay the bills and enjoy life. So, the goal of a retirement stock portfolio is to generate enough income for those uses.

How much income do you need to earn from your dividend portfolio?

You will earn income from your dividend portfolio and other sources. To figure out how much income you need to earn from your dividend portfolio, you first need to know how much income you’ll be earning from other sources such as pensions or perhaps a part-time job.

Dividend Income = Desired Income for Retirement – Income from Other Sources

For example, if you desire $50,000 of retirement income and you earn $10,000 from other sources, then, you’ll need to earn $40,000 of dividend income.

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