Dividend-paying stocks can ease the pain of a decline

Don't buy just for the dividend. This is a good rule. Stocks with crashing values often path through a phase where the dividend yield is great on paper. The dividend has held while the stock price has dropped. This is not a buying opportunity. Sadly, but not unexpectedly, the dividend is often cut and both the stock price and the dividend tumble into the dumpster. As the rule says, don't buy just for the dividend. It can be ephemeral.

That said, a good stock with a good dividend has the dividend as an ally, a backstop to loss. Bank stocks rise and fall but the Canadian bank stocks have a history of retaining dividend payouts throughout each cycle. I own Royal, Scotiabank and TD. My BNS is down at the moment but its dividend looks secure.

Recently I bought Pembina Pipeline. Today my investment is down $405. Ouch. That said, my 400 shares will yield $912 in the coming year in dividends. With today's loss factored in, I am still $507 to the good. At the price I paid to buy this stock, the dividend is still delivering 2.76% on my investment.

Yes, I know, the stock may yet fall farther. Today's numbers are just a snap shot of how the math performs at the moment. It may not be as good tomorrow. But, and this is more likely, at some point in the relatively near future the math will be better, much better. If I had wanted to avoid volatility, I would have bought a GIC. But then I might have had to settle for as little as one percent on my money. Even with a $405 loss, I am still doing better than if I had bought a GIC to keep for a year.

End of Day Add: At market close today my total PPL loss stood at $368.99. Pembina made a gain today despite the overall market suffering a very small loss. I will try and remember to come back in a month and tell how my PPL purchase is working out.

An allocation plan for my retirement portfolio

I've been retired since 2009. My pension was inadequate and I needed dividend income from my investments to live. Sadly, I don't have enough invested, or so the bank tells me. I've got a problem and yet I've lived well for the past nine years. How? I've put my money to work in solid companies paying decent dividends.

A TD Waterhouse estimate of my dividend income for next 12 months. Click on image to enlarge.

It has been easy being an investor during the past nine years. The market has been very forgiving. According to one trusted source, the present party should continue until 2020. Then we may see a correction. That's a market drop of ten percent. If we see a bear market, that means a drop of twenty percent or more. And a bear is always a possibility.

So, I've decided to get my financial house in order, to batten down the financial hatches so to speak. I'm using the intervening months to assemble a solid portfolio of resilient companies plus some decent ETFs to take my wife and me through the coming downturn and there will be a downturn. There always is. On the bright side, they don't tend to last long. Eight months would be normal and two years would be an exceedingly long lasting bear market.

I thought of going the Couch Potato route but for a number of reasons I have decided to borrow some Couch Potato ideas but not anywhere near all. You might feel differently. I highly advise checking out the Couch Potato. You could do much worse.

In my next post, I will talk about one of the sectors I am putting front and centre in my retirement portfolio: Utilities.