Boomers Likely to Focus on Dividend Stocks

Dividend Stocks for Dummies gets some notice in Canada.

Baby boomers, those born starting in 1946, will reach the traditional retirement age of 65 in 2011. Jonathan Chevreau of the Financial Post writes that without pension plans “boomers won’t abandon their love affair with stocks, despite being jilted by two market crashes in the past decade. However, they will flock to certain types of stocks: those that pay dividends — the juicier the better.”

Why? Dividend-paying stocks offer the promise of growing their dividends at or beyond the rate of inflation.

He says, and so do I, that, such a move to dividend stocks will reap an unexpected bonus: unsought capital gains for the stocks boomers choose — merely because of a growing demand for a finite number of decent-yielding stocks.

“All of which is good timing for a useful new book on this topic: Dividend Stocks for Dummies, by American financial journalist Lawrence Carrel. The title notwithstanding, I’d say dividend investing is for smart investors, not dummies. The book is U.S.-centric but not entirely so. It contains a chapter on international investing but some chapters focusing on the major economic sectors also list some well-known Canadian names.”

Investors are advised to “spread their money across the major economic sectors. Conveniently, those sectors each get a chapter in Part III of the book: Exploring Income-Generating Industries. This is the most interesting section, with chapters devoted to each of utility stocks, energy, telecommunications, consumer goods, and financial stocks (in which he lumps in REITs).

“Each ends with a list of stocks Carrel suggests should be “considered,” complete with ticker symbol, dividend and annual yield as of the end of 2009, listed in descending order by yield. Carrel explains the ins and outs of cyclical stocks and how they behave as the economic cycle progresses, and under different interest rate scenarios.

His 13 financial stocks include four of Canada’s big banks: all but BMO. His list of 12 telecom stocks includes BCE, whose dividend is 6.3%. In addition, a half-page sidebar is devoted to Canada’s royalty trusts and income trusts. Because they’re losing their tax-free status in 2011, Carrel’s recommendation is to “pass” on royalty trusts.

But it’s the sectors NOT represented in Canada, such as consumer goods, that Canadians should focus on. He lists 26 consumer goods firms, with yields from a low of 2.5% for Hasbro to a high of 11.4% for Vector Group.

To read the full story, click here.

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