If you are, I have an important message for you. I want to show you why you must shun bonds and embrace blue chip dividend paying stocks.
As the market has gyrated, you may have been leery of stocks and felt compelled to buy bonds. If so, this message will be of special importance to you.
I want to explain to you exactly why, for the first time in 60 years, stock market volatility no longer matters, particularly if you have a 10 year-plus time horizon.
I also want to share with you one dividend stock that you can buy right now that has twice the yield of government bonds. If this sounds too good to be true, you'd be absolutely right to be suspicious and skeptical. After all, bonds are guaranteed... how can stocks be a safer bet than bonds?
If You are Seeking Life-Long Income, Keep Reading
For the first time in 60 years, the yields on blue chip dividend stocks are now above the yields on long term government bonds. That means that stock prices don't have to go anywhere in order for you to beat the return on bonds. And unlike a bond, blue chip dividend paying stocks keep pace with inflation, and dividends generally increase over time.
The blue chip stock I'm about to share with you has paid a dividend every year since 1976. During that period, it has raised the dividend every single year and has never skipped a payment. Most importantly: The price of the stock and the dividend growth rate has far out paced the rate of inflation, while also delivering staggering capital gains along the way.
While U.S. Bonds are technically considered "safer" from a default standpoint, a bond can never increase its payout. The value of the bond and the income stream it provides will be ravaged over time by the unrelenting march of inflation. By buying U.S. bonds right here, at these prices, you are locking in losses after you factor in income taxes and inflation.
Buying bonds today is the equivalent of buying stocks at their bubble peaks in the year 2000.
If you want to fund your retirement and live the remainder of your golden years with dignity, then you must take advantage of this once-in-a-60-year opportunity and switch from bonds to blue chip stocks.
But there is one question that you must be able to answer before taking the plunge...
How Safe is the Dividend?
This is the only question you need to be able to answer in order to secure the income you'll need to fund your retirement. That's because, so long as the dividend is safe, the volatility of the stock itself does not matter. I want you to forget about the day-to-day fluctuations of the stock because, so long as they keep paying the dividend, what the stock price does is unimportant.
Important qualifier: I'm talking to those of you with a ten year or longer time horizon here. If you're looking to cash out your investment next month or next year, of course fluctuations in the stock price are going to matter. But with a longer time horizon, and for those of you who are strictly interested in the income generating principles at work here, we can assume that the day-to-day volatility of the stock will even out over time.
Over the last 30 years, the dividend payer I'm about to share with you has seen its stock price drop more than 60%, then rise several hundred percent, and at no time was there a hiccup in the dividend. Stock price volatility is the price you pay for all the benefits that blue chip stocks have over bonds.
The key to mentally surviving that volatility is to make sure you only invest in companies where you have a high degree of confidence in the safety of the dividend. This automatically excludes bank stocks, insurance companies and most (but not all) energy companies.
I would even exclude many REIT's and MLP's. When I invest for the dividend, I want absolute confidence that the company is going to be around and that their business cannot get wiped out by shady accounting and dishonest management. The underlying business must be able to survive any shock that can get thrown at it.
I think Warren Buffett said it best when he remarked that he wanted to own businesses that were so idiot proof that they could be run by a ham sandwich. Can a bank, REIT, insurance company or an energy company be run by a ham sandwich?
Probably not. That is why you want to focus on companies that have fantastic brand names, incredibly strong competitive advantages, and a long history of uninterrupted dividend payments.
A prime example of this type of company is McDonalds Corp. (Symbol: MCD). The stock currently pays a 3.18% dividend and, as mentioned earlier, has increased its dividend payment every year since 1976.
The stock got devastated back in 2003 as the company lost its way, but it did not matter to income investors because the franchise was strong enough to survive a series of terrible management decisions. While the stock got hammered, the dividend kept getting paid.
We now have another opportunity to buy this exceptional blue chip stock, as we have seen the stock sell off on weakness in Europe and strength in the U.S. Dollar. Much of MCD's earnings come from overseas and so, as the Dollar rallies, earnings will be reduced as the company exchanges its foreign profits into U.S. dollars.
However, as an income investor with a 10-year or longer time horizon, this hardly matters to you. All that matters is that the dividend is safe and that the company will continue to increase the dividend.
Global currencies will continue to fluctuate, recessions, depressions and wars will always be looming somewhere over the horizon, but people will still be eating Big Macs and French Fries.
Chief Investment Officer
ETF Master Trader