The Little Book of Big Dividends

So before you dismiss the idea of investing for dividends as either hopelessly old-fashioned or totally boring, remember the old fable of the tortoise and the hare. The tortoise lived to a ripe old age and is enjoying retirement in Florida. So will you, if you dedicate at least a portion of your investments to the principles explained here in the Little Book of Big Dividends? Terry Savage Terry Savage is the nationally syndicated Chicago Sun-Times financial columnist and author of four books on personal finance, the latest of which is The New Savage Number, How Much Money Do You Really Need to Retire? Introduction I am a rarity in that I have been with the same company my entire working career. My first day on the job at Horizon Publishing was August 16, 1982. Back then the company moniker was Dow Theory Forecasts, named after the investment newsletter that my firm still publishes today. There's nothing noteworthy about August 16, 1982. But August 17, 1982 was special. On that day, my second day on the job, mind you, the Dow Jones Industrial Average rose nearly 39 points. That may not sound like much, but in 1982 it was huge. A nearly 5% move, or the equivalent in today's terms of 500 points, on the Dow. On that momentous day, the Dow Jones Industrial Average closed at 831.24. August 17 is pegged by market historians as the beginning of the raging bull market of the 1980s and 1990s, an 18-year period when the Dow Industrials rose from a little over 800 to nearly 11,500 by the end of 1999. I mention 1982 because of one big similarity I see between the stock market then and now. In 1982, attractive dividend-paying stocks were bountiful. Indeed, many companies were sharing a portion of their profits with shareholders every three months by sending them hefty dividend checks. How big were the dividend checks? It was not uncommon for stocks in 1982 to pay shareholders dividends that equated to a yield of 6% or higher. Think of a stock's dividend yield as the interest rate you get for owning a stock. And these were quality companies with the potential for their stock prices to rise sharply. It was like shooting fish in a barrel, although I didn't know enough at the time to realize it. For example, had I the foresight and the money to invest a few dollars in some dividend-paying stocks on my first day on the job, I would probably be boogie-boarding in Bora Bora right now. Indeed, $5,000 investments in two quality dividend-paying stocks—Philip Morris and Exxon—on August 16, 1982 would be worth more than $1 million. And that's after the market crash of 2008. And it wasn't as if you had to be Warren Buffett to come up with those two gems. Exxon was a Dow stock in 1982, so it was hardly undiscovered. And Philip Morris produced products all of us knew, and some of us even loved. In hindsight, these stocks were no-brainers for dividend-loving investors. No-brainers that made you rich. Are there quality dividend-paying stocks in today's market that are just waiting to make you rich? The answer is yes. Finding them may not be quite as easy as finding them in 1982, but—make no mistake—there are dividend-paying stocks in today's market that will make you rich. Now is a great time to be a dividend investor. Really. Like 1982, today is an excellent time to be a dividend investor. That may be hard to believe coming on the heels of 2008 and 2009—two of the worst years ever for dividends. How bad? About one out of every eight stocks in the Standard & Poor's 500 Index reduced or eliminated the dividend in 2008. Only 15% of the companies in the S&P 500 Index cut or omitted dividends in 2009—the highest level ever.