Dividends are very nice.
Over time, dividend-paying stocks tend to outperform the non-paying stocks by a pretty wide margin and they are an excellent way to build a retirement portfolio – even if you are off to a bit of a late start. That's because the dividends themselves are kind of like an investing discipline – forcing you to take profits off the table on a regular basis or at least re-investing the profits into a conservative stock.
Dividend stocks tend to be the one investors run to in times of trouble, making them outperformers when markets turn ugly as well. On Friday, we initiated a Dividend Stock Portfolio, starting with a virtual $100,000 and our first 3 trade ideas were for Ford (F), Signet Jewelers (SIG) and AT&T (T) and they haven't moved much yet so it's very easy to catch up with us:
Of course, dividend stocks aren't supposed to move that much, we're not in them for the gains (hence the low strikes on the short covered calls), we're in it for those dividend payouts:
- F is a net $5,780 entry that will be called away at $7,000 over $7 for a $1,220 (21%) gain and 0.60 ($600) per year in dividends is another 21% over two years so 42% return potential ($2,420) if Ford manages not to drop 20%.
- SIG is a net $5,650 entry that will be called away at $13,000 for a $7,350 gain (130%) and $1.48 ($1,480) per year in dividends is another 26.2% over two years so 182.4% return potential ($10,310) if SIG does not fall $4.75 (26.7%).
- T is a net $29,450 entry that will be called away at $35,000 over $35 for a $5,550 (18.5%) profit and the dividends are $2.04 ($2,040) per year which is another 13.8% over 2 years so 32.3% return potential ($7,590) on a very conservative target (10% below the current price).
Notice our big cash commtiment is on AT&T because it's a nice, safe stock to play and we'll pick up $7,590 in a stock we're pretty sure we'll keep for life but, overall, just these 3 stocks are going to make us…
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