Retirement planning is something everyone should do, even when they're young. Sadly, people put it off and think that superannuation will take care of everything later on.
They should be investing 10% – 15% of their take home pay partly in high-yield dividend stocks.
Let's say you get a 5% yield on a stock and the company regularly grows the dividend 10% annually. Now the stock's yield may change over time, but your dividend rate of return would continue to grow. After about seven years, your dividend income should double from that initial investment.
That's where the power of compounding interest kicks in. You reinvest your dividends and get a bigger amount of dividend income from the larger number of shares. If you repeat the process over many years, you make more interest on your interest. That's how people can end up with $1 million + when they retire.
What stocks might be good for long-term dividend income?
First, there is the specialty retailer Super Retail Group Ltd (ASX: SUL), which has brands like Supercheap Auto, Rebel Sports, BCF and Amart Sports. Currently, retail stocks are still on the mend. Christmas holiday sales may be up, but the economy doesn't have a rosy outlook just yet.
That's why Super Retail Group's dividend yield is a big 5.2% fully franked. The stock is down from about $14 to $7.59 over the past twelve months, but it has maintained its track record for raising dividends.
If interest rates fall down further, more homeowners will have extra cash for purchases. That could lead to a boost in sales for retailers like Super Retail. Buying good companies when they are relatively cheap is one of the best ways to prepare for an economic turnaround. I would have the company on your watchlist, if not your portfolio.
Next, Transurban Group (ASX: TCL) would be a long-term pick for me – we're talking decades to come. Companies with protective "moats" around their business are great to own because they can steadily grow without heavy competition.
That fits Transurban to a tee. It owns and operates a number of toll motorways and tunnels in Sydney, Melbourne and Brisbane. You don't have to worry about waking up one day to see a new competitor suddenly opening a rival motorway.
Right now, the only thing that puts me off is the 39 price-earnings ratio. It just acquired five of the six toll roads in Brisbane recently. That should boost revenue and consensus forecast earnings growth is about 24% annually for the next two years and could grow even more further out. It's a good long-term stock, but it might be better to slowly build a position at better entry prices. Nonetheless, it pays a healthy 4.6% yield partially franked and has a good five-year past record for growing dividends.
