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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 accurate. 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 JOURNAL OF RETIREMENT PLANNING

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