For your retirement savings and future income, having good dividend stocks is one of the best ways to make your money work for you.
If you hold stocks for long periods of time, you only realise the gains when you sell. It's the steady dividend income that allows you to reinvest the money to compound upon your returns. High yield stocks may be the first choice, but really smart investors look for stocks that consistently grow dividend payments as well.
Think of it this way – until you sell a stock, your dividend income is like a bond that pays X% interest. Rather than having a set interest rate, you'd most likely love to have a bond that increases its payments over the years, right?
If a company has a consistent dividend payout policy, then the biggest driver for dividend income is earnings. Here are three companies that have very good track records for raising dividends and could be steady income stocks for your retirement portfolio.
Westpac Banking Corp (ASX: WBC), one of the Big Four banks, offers a 5.2% dividend yield, which is a lot more than you could get from a bank term deposit and now is more than some banks are even charging for mortgage loans. I could imagine Westpac doing business for many years to come, so when I see that it has a great record for raising dividend payments (from $1.16 a share to $1.94 in the past five years), it's a good indicator that future dividends could grow just as well.
AP Eagers Limited (ASX: APE) may not be one of your first guesses for solid dividend-paying companies, but the auto dealership operator has steadily increased dividends over the past 10 years by a compound average 13.9% annually. That's great for any business and shows investors that the current 4.1% fully franked yield could yield more in total dividend dollar payments in the future. The auto manufacturing industry may be on its way out in Australia, yet Australians will keep on buying and leasing cars.
Woolworths Limited (ASX: WOW) by now is on many investors' watchlists, but how many of them have benefited from the long-term growth the supermarket and general retailer has delivered in the past ten years? As the share price went from about $11 to around $36.36 since 2004, per share dividends have almost tripled also.
Competition with Wesfarmers Ltd (ASX: WES) and more recent market entrants like Aldi and Costco will continue without a doubt. However, no one would doubt Woolworths won't be around for decades to come. It currently offers a healthy 3.7% yield fully franked and shareholders could look forward to dividend increases as the market-leading company grows in the future.
