In my previous article on retiring comfortably, I gave readers three stocks that could allow you to quietly and profitably grow your dividend income and share returns over the next decade. Apart from the power of compounding through reinvestment of your portfolio income, the other way to increase your rate of return is to stuff your portfolio with good dividend-paying stocks that regularly grow their dividend payments.
Dividends are like bank account interest. Which would your rather have, a decent but set interest rate, let's say of 5% – 6%, or a rate that grew itself over the years? Would you like to see your dividend double? It could. You only need to gain about a net 7.5% annual increase over ten years for that to happen. Because time is on your side, you don't need to have unrealistically high rates of return every year to hit this target.
Over 20 – 30 years, the difference in total dollar returns could be quite amazing.
Here are two more stocks to add to your wishlist to make sure you are enjoying the champagne life in your own golden years.
1) Woodside Petroleum Limited (ASX: WPL)
Different from some stodgy, old bank stock, this energy giant has stable earnings plus has been growing its dividends over the past five years at an average 15% annually – double the rate in our example above. It is looking for more acquisitions and investments currently to drive its next five years of growth. It has several LNG projects at the planning stage that could be producing gas and profits within the next 5-10 years as well. If you're in for the long haul, then Woodside can reward patient shareholders. The energy industry will only grow because of the demand from economic growth in Asia. Even now it offers a whopping 5.6% yield fully franked to start you out.
2) Macquarie Group Ltd (ASX: MQG)
The investment bank does its best during market boom times when its managed investment funds return the most and corporate activity is high, generating very healthy fees for its services. Speaking of healthy, its compelling 4.7% yield will attract investors looking for both high income and dividend growth. Over the past five years, it also raised dividends around 15% on average annually.
With much stronger overseas markets and a growing world economy, "The Millionaires Factory" is back in action. I think holding a position in Macquarie Group is a smart move for the long term. Over the several decades to come, there will be a number of bull markets to drive earnings and dividends. In those down market times, you just top up the position while the stock is cheap and get ready for the next bull market.
