Don't Forget About Dividends

June 1, 2016 – Jack Sirard contributing writer

In such turbulent times in the stock market with fluctuation of hundreds of points on any given day, the big numbers can be downright confusing.

That’s why I like to concentrate on the much smaller numbers and in this case I mean the dividends that corporations pay. To me dividends usually tell a compelling story about a company’s financial health and its long-term outlook.

And while company’s paying dividends can be put in the boring side of the ledger in comparison to the latest high-flying internet stock, boring can add a lot of stability to your portfolio, particularly if you’re at or near retirement age.

For example, take a company like Procter & Gamble Co.

For the record, it’s a company that I don’t have any money currently invested in, but one that I think has both a solid long-term track record and a viable future. What’s more it’s a great company to show investors the value of dividend investing. 

When you take a close look at Procter & Gamble, there’s something to love for almost everyone in the United States.

Consider, for example, its wide array of consumer products: Most people could quickly identify Tide soap and Crest toothpaste as well as Gillette and Pampers,  but there’s also such well-known brand names as Bounty, Braun, Charmin, Downey, Head and Shoulders, Luvs, Old Spice, Oral B, Tampax and Vicks just to name a few. With more than 65 brands, the company is well positioned to sell products worldwide for decades to come.

The company has a pretty straight forward approach to business. It sees a big potential in life’s little moments such as brushing teeth, washing hair, showering, shaving, caring for the baby, cleaning the house and doing the dishes and laundry.

In other words, it makes something that each and every one of us needs every day and with such a vast brand portfolio, the company certainly enjoys a competitive advantage and pricing power over rivals.

But let’s talk about its ability to return money to its shareholders, who no doubt are some of its most loyal consumers.

When it comes to dividend income, Procter & Gamble is almost as predictable as sunrises and sunsets.

The stock (ticker symbol PG) sells for a smidge more than $80 a share and pays a dividend of $2.68 a share each year or (67 cents a share each quarter) giving it a yield of 3.29 percent.

What’s more, the company has increased its dividend each year for the past 59 consecutive years, making it one of the very few to do so. That means that despite the many recessions and market slumps, this company has continued to not only return capital to its shareholders, but to give more and more back year after year.

With all that going for the company, don’t think that there is no risk involved. In fact, like any stock there is always risk. And it’s worth noting that in recent years, PG has seen its sales growth slow due to such things as foreign currency transactions and the fact that it has significantly reduced its brands by assets sales. In addition, profits have declined somewhat over the last two years and the recent dividend increase was the smallest on record.

But someone on Wall Street must like the stock as it’s trading near its high water mark for the year and its cost cutting is expected to increase future profits.

Investors also need to know that just because a company offers what appears to be a generous dividend, you can’t always depend on it. For instance,  company WXYZ might have just reported some near fatal news and its stock took a hellacious beating of 40 or 50 points or more. The smart money would indicate that a sharp dividend cut – or omission - is just around the corner. 

As a result, you have to do your homework. You just can’t buy stocks based solely on the dividend yield.

So where do you begin to look?

One good starting place to find companies that have steadily increased their dividends over the years is dividend.com which maintains a listing of what it terms dividend aristocrats. There you’ll see a list of many other companies that have increased their dividends over the last 25 years or more. Some of them are well known names such as 3M and Coca-Cola as well as others such as American States Water and Dover Corp.

With a little study, I’m sure you will find a few stocks there that could help you supplement your retirement income.

Jack Sirard is a retired nationally syndicated investment columnist and senior writer for Senior Softball USA.