An Opportunity We Haven't Seen in 50 Years

Conventional investing wisdom says that if you're looking for income from your portfolio, you should buy bonds. Thanks to the market meltdown of 2008, however, stocks may well have become a better way to earn income from your investments.

That's right: For the first time in 50 years, the S&P 500 index offers investors a higher yield than the 10-Year U.S. Treasury note.

That's in addition to the long-term growth potential that stocks still have going for them -- and in spite of how far they may have fallen in 2008.

Dividends can rise, too
For an investor with a long-term time horizon, it really is a beautiful sight to behold.

See, stocks now have not just two but three things going for them: superior current income, long-term price appreciation, and increasing income.

After all, despite the rash of companies cutting their dividends in 2008, companies can -- and quite often do -- raise their dividends. And a company that consistently raises its dividends over time -- demonstrating that company's solidity and sustainability -- often outperforms the broader market.

Income today, more tomorrow
So if you truly want income in your portfolio, you shouldn't be looking at bonds. You should be looking at stocks that not only pay dividends, but have a history -- and a future -- of raising those dividends.

To see what might fit that bill right now, I ran a screen with the following criteria:

  • A yield higher than the 2.8% recently seen on the 10-Year U.S. Treasury note,
  • Dividend growth of at least 10% in 2008 -- in spite of the economic meltdown
  • A payout ratio less than 50%, which means the company pays out less than half of its earnings in the form of dividends -- giving the company room to raise its dividend in the future

Here are a few of the companies it returned:

Company

Recent Yield

2008 Dividend Increase

Payout Ratio

Waste Management (NYSE: WMI  )

3.3%

11.7%

44%

Chevron (NYSE: CVX  )

3.5%

11.8%

21%

PepsiCo (NYSE: PEP  )

3.3%

18.5%

44%

United Technologies (NYSE: UTX  )

3%

15%

26%

Automatic Data Processing (NYSE: ADP  )

3.5%

26.1%

47%

Sysco (NYSE: SYY  )

4%

15.8%

46%

Texas Instruments (NYSE: TXN  )

2.8%

36.7%

28%

These aren't buy recommendations, just suggestions for further research.

But think about it: More cash in your pocket today. The willingness to raise that payout even during troubled times. A legitimate shot at continued increases in the future. With an investing profile like that, what's not to love?

Start getting paid more
It's been half a century since the last time stocks paid investors more than 10-year Treasuries. At Motley Fool Income Investor, we're actively taking advantage of that situation by uncovering the strongest dividend-paying companies available at cheap-to-reasonable prices. With the powerful 1-2-3 punch of current income, income growth, and long-term capital appreciation on our side, we're well prepared to emerge victorious from this tumultuous market.

If you're ready to move past the panic of 2008 and arm your own portfolio with companies that reward their owners even during a global financial meltdown, now's the time to start. Simply click here to begin your 30-day free trial.

At the time of publication, Fool contributor Chuck Saletta owned shares of Sysco. PepsiCo and Sysco are Motley Fool Income Investor recommendations. Waste Management is an Inside Value choice. The Fool has a disclosure policy.


Read/Post Comments (5) | Recommend This Article (50)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 01, 2009, at 11:07 AM, dsk315 wrote:

    I can't imagine ever going long in stock again. Even well diversified portfolios got clobbered in 2008. To me it proves that speculation of any degree is 'foolish.'

    Randy Swan wrote, ".....stock with a reasonable amount of protection and income generating opportunities are you only real bet.."

    Swan authored an article "There is still room left in the lifeboat" detailing the long-term value of downside protection and I believe that the traditional strategies like buy & hold or asset allocation will need to be supported by more sophisticated approaches like a Defined Risk Strategy.

  • Report this Comment On February 01, 2009, at 11:56 AM, PennyPincher12 wrote:

    Agree with article. Now's the time to be investing.

  • Report this Comment On February 02, 2009, at 11:27 AM, otterbein70 wrote:

    I would be careful using the hackneyed phrase long term i.e meaning in the long term the investment will work out. I have owned bank stocks for the long term \and they have collapsed. So please do not mesmerize readers into thinking the long term will be better than the present.

  • Report this Comment On February 19, 2009, at 2:00 PM, SaturnOne wrote:

    One person needs to be aware of the extent that one extends the purchsases of 'good' stock. If a person invests in a large volume of different stocks, then the drain on building a mega dividend may be impossible. Therefore, each investor needs to be aware of the manageable amount of cash that s/he has available. Guru's can rail and promote good stocks, but they also should warn investors, especially new investors, to attend to amount of expenditures that are reasonable. SaturnOne

  • Report this Comment On February 26, 2009, at 11:45 PM, nicko168 wrote:

    Based on the past weeks of observation, in order to avoid these turmoil crisis, I would suggest the readers to avoid the following companies at the moment:

    1. Banks.

    2. Auto.

    3. Retails.

    4. Casino.

    5. Insurance.

    6. Builders.

    7. Advertising.

    8. Energy.

    9. Healthcare.

    10 Loan.

    11. Chemical.

    12. Credit.

    13. Electric.

    14. Communications.

    15. Semiconductors.

    16. Rental.

    17. Electronics.

    18. Computers.

    19. Software.

    Blah..Blah..Blah."what can I buy?" Ha..Ha....Don't listen to analyst's prediction which does not work in this turmoil but there's an old saying "listen from the horse's mouth"

    After listening to the speech that day which caused the whole stock market to slid to its lowest..."what the heck"..I realised that there's a shift in position to .....just playback the speech & the clue is what's not mentioned & who's already awarded the technology & millitary contract ....Ha...Ha..Catch it?

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