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10 J. Retirement Plan. 21 (2007)
High Dividend Stocks in Retirement Strategies

handle is hein.journals/jrlrp10 and id is 233 raw text is: September - October 2007

High Dividend Stocks in
Retirement Strategies
By Steven Holt Abernathy
Steve Holt Abernathy discusses the value of considering
company dividends in the evaluation of company management
and personal investment decisions.

dvisors I manage money for tell me one of
the toughest aspects of retirement planning
is overcoming client resistance to adequate-
ly balanced asset allocation. Fearful of eroding their
capital and outliving their assets, retirees tend to
overload their portfolios with fixed income prod-
ucts, Monte Carlo simulations and similar analytic
tools notwithstanding.
As we know, retirement portfolios top-heavy with
fixed income investments run the very real risk of
buying power erosion due to inflationary pressures.
As retirees live longer and through more economic
cycles, inflation becomes an ever-larger concern
imperiling principal and income streams alike. So the
conundrum for advisors becomes how to convince
retirees to allocate an appropriate portion of their
portfolio to equities without the anxiety associated
with day-to-day stock market fluctuations.
One solution lies in finding equities that display
investment traits satisfying both income requirements
and risk parameters. The stocks should:
  Contribute a reliable income stream;
   Provide opportunities for appreciation that offset
inflation and sustain buying power needed for
lifestyle maintenance, and;
   Display less than market volatility.
From an advisory perspective, issues meeting
these criteria would make planning easier and more
Steven Holt Abernathy is principal and portfolio manager of
The Abernathy Group in New York, NY The firm specializes
in asset protection and wealth management. For information on
dividend and income strategies, contact Mr. Scarfo at 800-342-
0956, info@abbygroup.com or at www.abernathyfinancial.com.

Historical Confirmation
In searching for these characteristics, consider that
since 1900, almost two-thirds of total equity returns
have been delivered from dividends. Of the 9 percent
in approximate annual return, almost 6 percent has
come from dividends. As a percentage of total equity
yields, however, dividends have steadily declined
through the decades, falling from over 5 percent to
below 2 percent currently, an historic low.
Writing in Buswss EcoNoMics, HenryTownsend com-
ments, ...over the 107 years 1872 through 1978, total
return was due to two sources, earnings growth and
reinvested dividends; the contribution of PE growth to
total return was a negative factor, minus 0.4 points a
year. But the great market rise beginning in 1979 was
due not only to strong earnings growth, more than
double the historical norm through 1978, but also to
a great change in investors' perceptions of the stock
market. At year-end 1978, the PE was 7.8; by year-end
1999 it was 30.5. Investors in 1999 were willing to pay
four times as much as in 1978 for a dollar of earnings.
PE growth, which contributed less than nothing to total
return over the whole pre-boom period 1872-1978, has
made up 48 percent of total return thereafter.The year-
end dividend yield fell from 5.3 percent in 1978 to 1.1
percent in 1999. From 1979 through 1999, reinvested
dividends made up only 20 percent of total return rather
than the pre-boom average of 63 percent.'
Danger of Speculation          _     __
Today, speculation fuels most stock appreciation.
Most people in the market think they are inves-

'2007 S.H. Abernathy


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