While waiting to take off on a flight back to New Hampshire after meeting clients in Florida recently, I had time to reflect on my visits with them.
Among them were a successful third-generation business owner in his 30s, a retiree in his 70s, a business owner in her 60s, and another business owner in her 50s.
It might seem they would have little in common from a financial perspective, but there is a common element to their financial plans. Dividend paying stocks can be a valuable component for investors in navigating various life stages.
The entrepreneur
The highest return on investment for most entrepreneurs is the investment in their own business. Our business, Cohen Investment Advisors, is growing strong, and we keep investing back into the business by hiring more people, expanding our marketing, and strategically adding technology to better serve our clients and run the business.
However, no matter how good the outlook may be, it is advisable to diversify 10% to 20% of profits into other investments, including shares of stock in other companies or interests in real estate holdings.
Our mid-30s client is investing primarily in his family business but also has holdings invested in dividend paying stocks. For him and his father, also a client, favorite holdings include Meta, Alphabet and Microsoft, which all pay dividends and have been strong growth companies.
The established professional
Our client in her mid-60s is considering retiring in the next five years but faces the common challenge of watching over the finances and helping make health care decisions for her aging mother. Her mother, a longtime client, is still enjoying the dividends from companies in her portfolio bought many years earlier, and the dividends and growth have helped sustain her finances well into her 90s.
Favorite holdings for both mother and daughter include Johnson & Johnson, Coca-Cola, Procter & Gamble and Home Depot, all of which have paid dividends consistently and have a history of raising them annually.
They are also well managed so that the share price has grown significantly over the years. This dividend income can be reinvested to supplement the portfolio’s growth in the working years. In retirement, the dividends are distributed to contribute toward a meaningful lifestyle.
The retiree
A retiree client in his 70s whom I visited depends on income from his portfolio to supplement his Social Security income. Like many retirees, he favors higher-yielding dividend stocks like American Electric Power, AT&T, Chevron, Kinder Morgan, Realty Income, UPS, Citigroup and Pfizer. His overall portfolio has been yielding over 4%, and the average dividend income has consistently kept pace with inflation.
In times like this, with the broad market having corrected 10% recently, high dividend-yielding portfolios have held up well relative to the market and even have the potential to gain like in 2022, the last time the market had an annual loss.
A life well lived
Missed on this trip was a favorite longtime client of ours, a 97-year-old client who passed away a month prior. His favorite holding was Apple. He bought this position about 18 years earlier, and the company has historically performed well with dividends that have shown consistent growth.
Investing in a portfolio of companies with long-term potential like Apple can be a means to build significant wealth over a lifetime. Our friend leaves behind a cherished legacy that will live on through generations of his beloved family.
A fun coincidence
At the time the plane was to depart, our pilot made an announcement that President Trump just landed at Palm Beach Airport, and we needed to wait for clearance as the President headed to Mar-O-Largo. Coincidently, the pilot of our flight happened to be one of our clients who is also an investor in a portfolio of dividend-payers.
He and his wife are nearing retirement, and their investment portfolio income will supplement their real estate rental income and future Social Security to fund their retirement years. Another of our clients in Florida, also in her 50s, owns dividend-paying stocks with a similar objective.
History lesson
In our many years of experience, dividends have a place in all portfolios, from the 30-something to the 90-something clients and everyone in between. Additionally, the positions owned can be passed down from one generation to the next.
Your family can continue to hold the same portfolio of company shares you accumulate over your life, and the dividends could enhance their life for decades to come. Perhaps there is no better way to plan your estate than to ensure you pass down an investment portfolio to your family. Many valuable lessons can be learned from the histories of companies in which you own shares.
Daniel Cohen, a certified financial planner, is CEO and chief investment officer at Cohen Investment Advisors, a registered investment advisory firm in Bedford.
