In 1934, Benjamin Graham and David Dodd wrote in their classic Security

Analysis, “The prime purpose of a business corporation is to pay dividends to its owners.” This didn\’t used to be such a foreign concept to most investors because stocks were actually viewed as fractional ownership interests in companies. As a result, investors felt entitled to the profits of those companies – as well they should!

Things changed in the 1990’s as management teams stopped returning capital to shareholders and used it to fuel acquisitions, research, etc in an effort to drive capital appreciation in the stocks as opposed to the steady returns of dividends. Dividend paying stocks were considered boring and “unsexy” and paid out paltry yields.

But guess what? When the high-flying, high-growth (or “expected” growth) internet companies blew up, the dividend payers kept marching along..paying out, and increasing, their dividends.

What does this mean for retirement and why do I consider dividend paying stocks to be a crucial component of every portfolio? Dividend stocks are by far the best way to create real wealth and sustainable passive income stream over time.

In these markets nothing is guaranteed which is why dividend paying stocks pay more than investment grade bonds which, in turn, pay more than Treasuries. There are different levels of risk associated with each of those asset classes and the long-term returns reflect the “risk premium” that the market has required as compensation for investing in those asset classes.

The world is different now and for the baby boomers who are just moving into retirement age the implications are huge. Traditional investment advice that dictate that a person spend their entire working life in the “accumulation phase” and then draw down on their assets in retirement is just plain wrong.

Once a person retires, the biggest difference, of course, is the paycheck retires too. Now, income needs must be met through any combination of:

– Pensions and/or Social Security. While pensions have all but disappeared, many baby boomers may still be able to rely on this as a source of post-retirement income. Similarly, Social Security (which is almost certainly going to disappear in the next 50 years) will be able to provide some source of income for those getting ready to retire.

– Savings withdrawals. This is where conventional retirement advice has focused most of its attention and there are numerous “retirement calculators” online that allow you to input various assumptions about savings rates, stock market returns, years to retirement and income in retirement to arrive at a “magic retirement number” such that you could draw on that sum as a form of income each month and not run out of money with a high degree of likelihood. Limiting yourself to this framework is hugely crippling.

– Passive Income. The focus here is on Dividends but this also includes things like real estate and/or passive business income (which really is just a dividend). Consider the baby boomer who invested $2,000 in Phillip Morris stock in 1980. That initial stake would’ve grown to over $670,000 today and would be paying over $9,600 a year in dividends (see more examples here). But dividends don’t just benefit those that have the luxury of 30 years to let those dividends grow. Even today, many high quality S&P Stocks are yielding 5% and will continue growing over time.

DividendInvesting101.com is a free resource dedicated to one goal: Helping people achieve massive income through investing in the Best Dividend Paying Stocks. Few people realize how quickly a robust stream of income can be built with much less money and time than they thought. Let us help you start building wealth…one dividend check at a time.

http://DividendInvesting101.com is a free resource dedicated to one goal: Helping people achieve massive income through investing in the Best Dividend Paying Stocks. Few people realize how quickly a robust stream of i

Author Bio: DividendInvesting101.com is a free resource dedicated to one goal: Helping people achieve massive income through investing in the Best Dividend Paying Stocks. Few people realize how quickly a robust stream of income can be built with much less money and time than they thought. Let us help you start building wealth…one dividend check at a time.

Category: Finances
Keywords: dividend paying stocks, top dividend paying stocks, dividend aristocrats, best high yield stocks