Although there are countless investing strategies, the stock market does offer some near certainties.
For example, each and every one of the past 37 stock market corrections — a decline of at least 10% from a recent high — in the S&P 500 since 1950 have been completely erased by a bull market rally. If you buy into a diversified basket of companies and hold for an extended period of time, this data suggests that you’ll make money…
Income investing can help you retire rich
But that’s not the only near guarantee you’ll get from looking at investing data. A quick glance also shows that dividend-paying companies have historically outperformed their nondividend-paying peers over the long run. And this really shouldn’t come as that much of a surprise given that dividend-paying stocks tend to be profitable and have time-tested business models. Being able to reinvest your payouts back into more shares of dividend-paying stock is one of the most commonly used strategies by professional money managers to compound the wealth of their clients.
However, this brings us to one of the greatest dilemmas of dividend investing: the association of yield to risk. Generally speaking, the higher the yield, the higher the risk involved. Since yield is a function of share price, a failing business model with a declining share price can trick income seekers into buying a lemon. In short, we want high-yield dividend stocks to buy (i.e., those with 4%-plus yields), but with as little risk as possible.
If your goal is to retire rich, or simply continue to compound the wealth you’ve already accrued during retirement, here are three high-yield (and diverse) dividend stocks you can practically set in your portfolio and forget about for a long time.
AT&T
As someone who began investing right as the dot-com bubble was getting its legs, I can attest that just saying the name “AT&T” (NYSE:T) makes me want to shut my eyes and fall asleep. It feels like a virtual dinosaur with cloud companies and artificial intelligence developers cropping up out of the woodwork in the tech sector. But despite the relative boringness of AT&T’s business model, it does two things very well: It makes money, and it passes a good chunk of these profits to its shareholders.
You probably know AT&T best for its wireless business, and this core operation could see a nice boost in growth beginning in 2020 and beyond. Following hefty investments in 5G technology, AT&T is laying the groundwork to roll out these higher-speed networks to new cities around the country. With 5G-capable smartphones only recently beginning to hit stores, the expectation is that faster download speeds and a more data-hungry consumer should lead to a long-lasting upgrade cycle for AT&T. Remember, data is where the bulk of AT&T’s wireless margin power lies, so a more data-driven consumer should yield higher average revenue per user.
AT&T also stands to benefit from its Time Warner acquisitions. Bringing popular networks like CNN, TBS, and TNT under its umbrella should help lure traditional content seekers, as well as video streamers. More importantly, with the election season right around the corner, and more advertising bargaining power than it’s arguably ever had, AT&T should see significant gains in the ad revenue department.
All told, AT&T has the potential to grow profits by the low-to-mid-single digits each year, all while remaining a Dividend Aristocrat. This 6% yield is about as safe as it gets, making it the perfect set-and-forget income stock…
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