Stocks That Pay You to Retire

Retirement just isn't what it used to be. Only a few decades ago, it was common for our forefathers to toil for 40 years at the same corporation before receiving a modest pension to secure their golden years of woodworking and playing bridge.

Today, most companies are either freezing or outright eliminating defined-benefit plans for their dedicated workforces. But while the death of the traditional pension may sound cruel, investors do have potentially more attractive alternatives. In fact, rather than toiling at a company for decades, hoping that it will eventually foot your retirement, you could get a company that never even hired you to pay you to retire.

Pass "go" and collect
Having recently left a 15-year career at a large corporation, I now see how inadequate my newly frozen pension really is. My meager benefit of $150 per month (if I start drawing now) obviously means I'm not retiring early, and I don't expect to. If I wait until age 62, the jump to an estimated $1,000 per month still won't pay for my golf dues and lawn bowling lessons. Time for Plan B.

Like most other U.S. workers, I need to keep funding a retirement account, such as an IRA. But what if an investor took some pension funds and put that money into stable, dividend-paying stocks? Many investors are surprised at the number of high-yielding companies out there that are willing to pay you cold, hard cash to own shares:

Company

Current Yield

Five-Year
Annualized Return

Enterprise Products (NYSE:EPD)

6.6%

17%

Vodafone (NYSE:VOD)

3.0%

16%

Compass Minerals (NYSE:CMP)

3.2%

37%*

Fording Canadian Coal Trust (NYSE:FDG)

4.9%

60%

AllianceBernstein (NYSE:AB)

7.5%

24%

LAN Airlines (NYSE:LFL)

8.4%

66%

BP (NYSE:BP)

4.0%

16%

*Since December 2003 IPO. Data from Yahoo! Finance and adr.com. Yields subject to change.

Just putting $50,000 into this basket of stocks could net $2,800 annually in dividends. If you retire and need the money, you could take that paycheck. Or, if you're years away from the good life, you could reinvest it to compound the growth. In fact, let's say you fell short of any of these powerhouse returns, but still achieved 12% annual returns counting dividends reinvested. That $50,000 would plump up to more than $150,000 in just 10 years. Assuming the investments maintained their yields, you could then be earning three times the original income.

Cashing in or cashing out
The notion that you can no longer count on a corporation to fund your retirement is really only half true. The recent rash of pension freezes and obliterations offers investors an opportunity to change how they look at -- and plan for -- retirement. Well-researched investments in high-yielding, well-positioned corporations can have you happily unemployed ahead of schedule.

The Motley Fool Income Investor service has identified dozens of dividend payers just itching to have you quit your job. OK, maybe that last part is stretching the truth. But the average recommended stock is beating the S&P by seven percentage points, and it offers a greater-than-4% yield. That might be enough to make you think seriously about leaving the workforce behind. You can click here for a free 30-day trial and see everything the service has to offer.

This article was originally published on April 30, 2007. It has been updated.

Fool contributor Dave Mock wonders why the quick brown fox wouldn't just go around the lazy dog -- silly fox. The longtime Fool is author ofThe Qualcomm Equation. He owns no shares of companies mentioned here. AllianceBernstein, Enterprise Products, and LAN Airlines are Income Investor recommendations. The Motley Fool's disclosure policy winks only when it means something.


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Related Tickers

11/24/2014 11:32 AM
AB $27.14 Up +0.43 +1.61%
AllianceBernstein… CAPS Rating: ****
BP $42.32 Down -0.10 -0.24%
BP p.l.c. (ADR) CAPS Rating: ****
CMP $90.45 Down -0.94 -1.03%
Compass Minerals CAPS Rating: ****
EPD $39.16 Down -0.39 -0.97%
Enterprise Product… CAPS Rating: *****
FDG $74.51 Down +0.00 +0.00%
Fording Canadian C… CAPS Rating: ***
LFL $12.15 Down -0.13 -1.06%
Lan Airlines S.A.… CAPS Rating: **
VOD $35.29 Down -0.38 -1.07%
Vodafone CAPS Rating: ****

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