Stocks that produce significant cash flow, called high-yielding or high dividend paying stocks, are one of the keys to a successful retirement portfolio. A stock can generate gains either by rising in value producing capital gains, or it can generate gains by paying dividends and increasing its yield.
High Dividend Paying Stocks
The more common way to refer these cash flow producing company's shares is high dividend paying stocks, as opposed to the term high-yielding stocks. high-yield stocks simply refer to stocks that have a combined high cash flow from both dividends and from other forms of gains, including capital gains. Dividends can be far more important than capital gains in the sense that dividends are much more controlled by the profit from the business where capital gains are controlled by the vague nature of the stock market. Very often utilities will be a chosen form of high paying stock. However, the problem with this is that utilities may be controlled by political bodies and their dividends are then subject to regulation by local political boards. This places a great deal of risk on the level of those dividends.
Seeking high dividend paying stocks is often as simple as filtering through a stock quote system looking for stocks that produce dividends above 5%. 5% is an arbitrary level for high dividend paying or high yielding stocks. Very often investors can find stocks that pay over 8% combined dividend and/or yield. It is unlikely they will find these that easily on the American Stock Exchange as many of them are Canadian energy trusts or they are utilities. The key lesson is that high dividend paying stocks are a foundation for a retirement portfolio, when the capital gains that were once counted on as key to a retirement portfolio are no longer secure. High dividend paying stocks, however can provide cash flow even while the overall value of the portfolio drops.
Hunting High Yielding Stocks
Good sources for high dividend or high yield being stocks are the energy companies as briefly mentioned. Mining companies that are large cap, profitable, established and not spending a great deal of money on exploration, but simply producing at a large profit can offer high dividends. Established, very profitable high tech companies also offer attractive dividends. Believe it or not, Microsoft is a profitable high-yielding company and McDonald's is a high-yielding company because they are both profitable and increasing their dividends.
By focusing on high yielding stocks or high dividend paying stocks an investor will secure retirement through cash flow rather than depending on selling those stocks for gains later on. As all the investors who experienced the tremendous drop in the value of their portfolio from 2000 onward can now attest, depending on selling stocks for capital gains can be a dangerous and money-losing strategy.
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