Over time the 4% rule has been criticized for leaving too much money on the table and in some cases retirees could outlive their money. For those not familiar with the 4% rule, William P. Bengen in 1994 published a study concluding that if retirees withdrew 4% (the 4% rule) of their nest egg in the first year, and then increased the dollar amount by the inflation rate every year, their savings would easily last 30 years.
At the time of the initial study, he assumed the portfolio was held in a tax-deferred account and was evenly split between large-company stocks and U.S. Treasury bonds. In a subsequent study he revised the withdrawal rate to 4.5%. The higher rate was supported by adding U.S. small-company stocks to the portfolio. This increased the portfolio's potential return, and also increased its volatility
Bengen notes that people who retired in 2000 are of the greatest concern. Since retiring, they have endured two major bear markets. The next five years will be critical for this group. A surge of inflation above its historical average of 3% could derail the 4% rule for this group.
You have to be able to survive worst-case scenarios. There is a better way...
Instead of eating away at your principle, why not live off the fruit of your portfolio? The best way to do that is with a hand-selected portfolio of dividend growth stocks. Not only will you receive an annual income, but it will grow each year.
This week, I screened my dividend growth stocks database for select stocks with a minimum 3.5% dividend growth rate and yield of 4.5% or more. The results are presented below:
Darden Restaurant Inc. (NYSE:DRI) operates the Red Lobster, Olive Garden, Bahama Breeze, Seasons 52, LongHorn Steakhouse and Capital Grille chains.
Yield: 4.5% | Dividend Growth: 15.0%
Southern Company (NYSE:SO) is an Atlanta-based energy holding company and is one of the largest producers of electricity in the U.S.
Yield: 4.6% | Dividend Growth: 3.6%
W. P. Carey Inc. (NYSE:WPC) is an investment firm that provides long-term sale-leaseback and build-to-suit transactions for companies worldwide and manages a global investment portfolio.
Yield: 4.8% | Dividend Growth: 5.0%
Realty Income Corporation (NYSE:O) is an equity real estate investment trust that owns commercial retail real estate properties in the United States.
Yield: 5.0% | Dividend Growth: 4.1%
Digital Realty Trust Inc. (NYSE:DLR), a real estate investment trust (REIT), that owns, acquires, repositions and manages technology-related real estate.
Yield: 5.7% | Dividend Growth: 15.0%
Omega Healthcare Investors Inc. (NYSE:OHI) is a real estate investment trust (REIT) that invests in income-producing healthcare facilities, mainly long-term care facilities located in the United States.
Yield: 6.3% | Dividend Growth: 8.3%
Alliance Resource Partners (NASDAQ:ARLP) produces and markets coal primarily to utilities and industrial users in the United States. It offers low-sulfur coal, medium-sulfur coal, and high-sulfur coal.
Yield: 6.2% | Dividend Growth: 8.1%
Main Street Capital Corporation (NYSE:MAIN) is a business development company specializing in equity, equity related, and debt investments in small and lower middle market companies.
Yield: 6.0% | Dividend Growth: 5.9%
Kinder Morgan Energy Partners LP (KMP) is one of the largest pipeline master limited partnerships (MLPs) in the U.S.
Yield: 6.4% | Dividend Growth: 5.5%
As with past screens, the data presented above is in its raw form. Some of the the companies would be disqualified for poor dividend fundamentals. However some of the others may be worth additional due diligence.
My database, D4L-Data, is an Open Office spreadsheet containing more than 20 columns of information on the 230+ companies that I track. The data is sortable and has built-in buttons and macros to make it easy to use. Companies included in the list are those that have had a history of dividend growth. The D4L-Data spreadsheet is a part of D4L-Premium Services and is updated each Saturday for subscribers.
Full Disclosure: Long O in my Dividend Growth Portfolio and long SO, DLR, OHI, MAIN in my High Yield Portfolio. See a list of all my dividend growth holdings here.
- Dividend Stocks Are My Conviction
- Are The Dividends Safe For These High-Yielding Stocks?
- My 2012 Top And Bottom Performing Dividend Stocks
- 7 Dividend Stocks With Room To Increase Their Payout
- 9 High Rated, Lower Debt Dividend Stocks With A Reasonable Payout
Sources: Wall Street Journal, Yahoo Finance, Wikipedia
- High Yield Dividend Stocks in Gurus' Portfolio
- Top dividend stocks of Warren Buffett
- Top dividend stocks of George Soros
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