Dividend Stocks: The Cure for What Ails You

Brian Hicks

Updated September 7, 2010

Let’s face it… Finding a safe, profitable investment is getting harder and harder these days.

Of course, the reasons for this are pretty simple:

  • The housing market is in a never-ending tailspin;

  • The banking system is not what it used be;

  • The jobless picture is God-awful; and

  • Wall Street’s shenanigans have scared most retail investors right out of the pool.

It’s like a giant wall of worry has been built and could come down on investors at a moment’s notice.

The truth is that these risks aren’t imaginary. They are very real… And every investor knows that their financial future is hanging by precarious thread.

They can feel it in their bones.

But instead of actually charting their own course, most investors — for some reason are still blindly checking the boxes on their 401K forms as they thumb through a prospectus that they will never read.

It’s as if the default setting for them is stuck permanently on the “EASY button.”

To me, that seems not only lazy, but also not very bright…

A healthy dose of dividend stocks

Instead, I think most investors who are looking for safety along with a healthy dose of yield ought to be buying solid dividend stocks in today’s markets.

And that includes the nation’s savers who have had the rug completely yanked out from under them by the Federal Reserve’s zero interest rate policy and the Fed’s continuing effort to push bond yields to all time lows.

Because with yields on the benchmark 10-year Treasury note hovering in the 2.6% range, and the interest on checking, money-market and certificate of deposit accounts now under 1%, dividend-paying stocks will tend to outperform in 2010 while also providing a certain level of safety.

Of course, seasoned income investors like Warren Buffett have known this for years…

This is why the ultra rich don’t spend all of their time watching the financial news and trading stocks. They’re too smart for that.

They know that investing in steady-income producing strategies using dividend stocks is just as rewarding.

And as our Wealth Advisory subscribers have happily learned these income strategies work… month after month… year after year… just like clockwork. To date, our dividend portfolio is up big over the last two years, banking 209% in gains without so much as a single loser.

However, picking successful dividend paying stocks is not as simple as buying only the stocks with the highest yield…

In fact the stocks with the highest yields are often the ones that trip up investors the most.

Instead, picking winning dividend stocks usually requires finding candidates with two qualities:

1. They should have a minimal risk of a dividend cut.

2. There should be a high probability that the dividends will increase while you own the stock.

Health care stocks are the cure

Those two factors, of course, are exactly what makes dividend-paying health care stocks so attractive these days.

That’s because if there is one area of the economy that’s bulletproof in regards to a recession, inflation, or worse stagflation, it has to be health care.

And when you add the prospect of 78 million graying baby boomers to the mix, the prospects for these types of investments is practically a no-brainer.

According to projections by the federal government, consumers and taxpayers will spend more than $4 trillion on health care by 2017 as our population continues to age.

The result is that health care spending will have to increase by 6.7% annually over the next six years, out-pacing inflation by nearly three times, according to the forecast.

In fact it is estimated that by 2017, health care spending will cost an estimated $13,101 per person versus today’s average cost of $7,026 per person.

Better yet, the health care share of gross domestic product (GDP) is expected to increase throughout the period, reaching 19.5 percent of GDP by 2017.

That, needless to say, will provide the type of environment that will keep those dividends growing — right along with their share prices.

Considering these factors, here are two ways to play these trends, while earning a nice dividend along the way:

  • Go long Johnson & Johnson (NYSE: JNJ): This is one great company with the demographic tide completely on its side. Moreover, the company’s dividend history is as solid as it gets — and is growing. Currently the dividend yield is 3.7%, and Warren Buffett, by the way, is among its biggest holders.

  • Go long Abbott Laboratories (NYSE: ABT): Much like JNJ, Abbott Labs is a diversified health care giant with the wind at its back. On top of that, the 120-year-old company pays a 3.5% dividend and is expected to increase its sales 8% this year to $33.1 billion.

So don’t believe for a moment that income stocks are only suited for the “retiree crowd.”

Whether you’re young, old, or somewhere comfortably in between, top dividend stocks have a place in every investor’s portfolio — especially if you’re serious about investing for retirement.

Your bargain-hunting analyst,

steve sig

Steve Christ
Editor, Wealth Daily

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