Talk to me Goose.

Bill Parrott |

Thirty years is a long time.   It is hard to conceive that 30 years ago was 1986.  1986 brought us Top Gun, the Chicago Bears and the Challenger Space Shuttle tragedy.  

Today, the yield on the United States Treasury thirty-year bond is 2.61%.  It is hard to imagine investing in this bond today and waiting for it to mature in 2046.   However, there are individuals buying this bond for safety as a result of the recent stock market turmoil.  Safety is a relative term, of course.   A bond is certainly “safer” than a stock in the short term but over the long haul it is hard to beat a basket of great companies. 

According to Morningstar there are currently 3,892 companies that have a dividend yield that is 2.61% or higher.  Included in this list are 264 companies that have raised their dividend at an average annual rate of 10% or more during the past 10 years.  

I plucked ten companies from the list of 264.   The ten companies are Boeing, Harley-Davidson, Intel, McDonald’s, Microsoft, Pepsi, Walmart, Paychex, Aflac, and Target.   An investor who purchased these ten companies and invested $10,000 in each would have spent $100,000.   These ten companies today are worth $9.29 million giving the investor an average annual return of 19.47% (before fees and taxes).  The current dividend income from this $9.29 million portfolio is $245,846 which is 145% greater than your original investment.   If you were going to buy these ten stocks today, the current dividend yield is 3.18%   A $100,000 portfolio with these ten companies would provide you with an income stream of $3,180 per year while the U.S. Treasury thirty-year bond would generate $2,610.    The basket of stocks would give you $570 more per year in income plus some upside.

As a comparison, the total return on the S&P 500 during the past 30 years was 10.7%. 

I will always take my chances with a basket of great companies with a strong history of paying and raising their dividends.   A company with a solid balance sheet and dependable cash flow is tough to defeat.

for wisdom is more precious than rubies, and nothing you desire can compare with her.  Proverbs 8:11.

Bill Parrott is the President and CEO of Parrott Wealth Management, LLC.

Source:  Morningstar.