If you are just starting to invest for your golden years, the biggest challenge you will face is how to build a portfolio that supports you well enough in your retirement.
Over the past ten years, the world has become accustomed to an environment where interest rates remain low, so savers do not run low-risk investment opportunities. According to Bankrate.com, the best rate that American banks offer for December is no more than 2%.
The reality in this constantly low interest rate environment is that retirees must have a good portion of their portfolio of shares in order to achieve a higher total return. There is no doubt that this approach requires more risks and means that you have to put your savings at the whim of the market.
That said, there are ways to control the risk. You can carefully research the shares that you purchase. For example, you can focus on leading companies that operate in an environment where competition is limited, the regulatory framework is favorable to their growth, and that have an established and diversified revenue base.
That strategy will certainly take you away from all the sexy names the financial press goes out to. Instead, you should look for the boring, old economy companies, such as electricity and gas companies, major infrastructure providers, banks and insurance companies.
Dividend growth stocks
These are the types of companies that continue to pay dividends through the thick and thin market. As you continue to build your portfolio on the basis of these solid income shares, you must also keep a close eye on the growth of their payouts.
Pensioners must not only pursue the highest returns. The strategy we recommend: look for companies that are increasing their dividend per share and are likely to continue to do so. That is an excellent sign of financial health.
Let's take the example of Starbucks Corporation (NASDAQ :). The global coffee chain may not seem too attractive for potential pensioners if only the meager dividend yield is noted. During the past five years, however, this share has rewarded its investors with a large pay rise every year: the average dividend per share grew by 23.40% a year. After this huge increase, investors now receive a quarterly payout of $ 0.41 per share.
Monthly price chart of Starbucks
On the financial side, Canadian banks are among the best dividend growth stocks in North America. What makes them different from their colleagues south of the border is less competition, a healthy regulatory environment and their diversification.
They operate in a kind of oligopoly where there is little competition and the regulatory environment stimulates growth. Canada's best lenders have been very consistent in rewarding investors with steadily growing dividends, which they spend around 40% -50% of their income.
In this group we are particularly charmed by Toronto Dominion Bank (19459006) (19459006) NYSE: Canada's second largest lender, has a very attractive dividend policy, supported by strong growth momentum and major retail banking activities in the US
While pursuing the best shares for dividend growth, you focus on four sectors that we believe are well positioned to pay higher dividends every year. These include bank stocks, integrated oil companies such as Chevron Corp (NYSE 🙂 and Exxon Mobil Corp (NYSE :), old technology shares such as Microsoft Corporation (NASDAQ 🙂 and growth assistance programs, including those involved in producing clean energy, such as Nextera Energy (NYSE :).
Bottom line
A carefully designed investment strategy, based on solid shares for dividend growth, will help you build savings faster. Even in this environment with low rates, it is possible to achieve a better return to help improve your retirement income. To achieve that goal, you need a disciplined investment approach whereby you purchase and hold reliable, well-established income shares.
