This strategy is expected to be popular for the next 10 years or until the average CD rate beats the average dividend rate. We have a lot of retirees who depend on income from investments. The low interest rates from CDs and bonds drive these folks to dividend stocks.

Here is a simple screen to find these stocks. First find the stocks that have dividend rates more than 2% (about half of all S&P 500 stocks). Take out those sectors that give dividends as a return of equity (REITs and many partnerships). Eliminate the stocks with bad fundamentals such as high expected P/E (and earnings is negative), high debt (compared to companies in the same sector), etc. Next ensure that they have a good history of maintaining or increasing dividends (i.e. dividend growth).

As of 5-2014, it has been working well for the last five years. Be cautious on bank stocks, the drug companies, the miners and the insurers. I ignore foreign companies and ADRs (those foreign companies listed in the U.S. exchange). I prefer larger companies.

However, when a strategy is overused, it may not work any longer. There may be a mild bubble on these dividend stocks due to too many followers. We will discuss how to protect our dividend portfolios.

In addition, we should not buy (actually should sell most stocks you own) stocks during a market plunge. Since 2000, we have had two market plunges with an average loss of over 45%. We hope to have a maximum loss of 25% instead of 45%; most techniques depend on price movements and hence we cannot detect the peaks and bottoms. There are at least three variations on dividends:

• Dividends given to stock owners (registered on and before the ex-div date).

• Covered Calls. You can receive dividends while 'renting' your stocks.

• DRIPs, Dividend Reinvest Plan.

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Last update: 01/2023.

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