Investors have come to rely on dividend stocks to get the income they need, and among the elite in dividend investing are the so-called Dividend Aristocrats, which have raised their annual payouts for 25 years in a row or longer. But are these dividend stocks a smart idea for those saving for or in retirement?
In the following video, Dan Caplinger, The Motley Fool's director of investment planning, looks at a recent Bankrate survey that found that over the long run, the Dividend Aristocrats have beaten the S&P 500 (SNPINDEX:^GSPC) and other stock funds in terms of total return. Dan notes that dividend stocks have had better long-term performance, with Coca-Cola (NYSE:KO) and Altria (NYSE:MO) among the many dividend stocks that have produced outstanding total returns for decades. But Dan reminds investors that earnings multiples on dividend stocks are higher than usual, citing average P/E ratios on Vanguard Dividend Appreciation ETF (NYSEMKT:VIG) that match the broader market as an unusual sign. Moreover, Dan says that for some dividend stocks, rising interest rates could pressure shares as well. Dan concludes that dividend stocks are a smart way to invest, but you shouldn't rely solely on them for your financial future.