Is 60/40 Rule Obsolete Now? 5 Dividend Stocks to Buy

As one enters the retirement period, a smart allocation of assets is needed to enjoy a regular stream of income. Earlier, a rule of thumb was followed for retirement corpus, which said that the stock part of one’s portfolio should equal 100 minus the retiree’s age. For example, if an investor retires at 60, 40% of his total savings would go to stocks and the rest to bonds.

But strategists from Bank of America and J.P. Morgan now see the end of success in the 60-40 standard portfolio. J.P. Morgan believes that a traditional 60/40 portfolio will deliver annual returns of 3.5% over the next decade, compared with 10% over the past few decades, per an article published on MarketWatch.

The key reason is meager interest rates from government bonds in a rock-bottom interest rate scenario. As of Jul 7, 2020, the benchmark U.S. treasury yield was 0.65% while the real benchmark yield was negative 0.78%. Real yields have been negative from all the maturities’ periods including 5-year, 7-year, 10-year, 20-year and 30-year.

What Do Wall Street Strategists Believe?

“The relationship between asset classes has changed so much that many investors now buy equities not for future growth but for current income, and buy bonds to participate in price rallies,” said Bank of America strategists.

“In the zero-yield world, which we think will be with us for years, bonds offer neither much return nor protection against equity falls,” said Jan Loeys and Shiny Kundu, strategists at JP Morgan, in a recent note, as quoted on MarketWatch.

“With yields so low, bonds can no longer do all the things they’ve been doing for investors during this secular declining interest rate environment over the last forty years,” said David Jilek, chief investment strategist at Gateway Investment Advisers, noted MarketWatch.

Time to Shift to Dividend-Heavy Stocks?

One solution to deal with record-low interest rates could be investing in dividend-oriented stocks. However, the coronavirus outbreak made the matter tough with many companies cutting or halting dividends. One has to choose companies with a history of dividend payments and providing decent yields too. Having a look at the companies’ financial strength is also important in the current situation.

Stocks to Pick

Below we highlight a few stocks that have a Zacks Rank #1 (Strong Buy) or 2 (Buy), a dividend yield of greater than equal to 2%, five-year historical dividend growth of greater than 5%, debt-equity ratio of less than equal to one and a cash ratio of greater than one.

BlackRock, Inc. (BLK)

The Zacks Rank #1 company offers products that span the risk spectrum, including active, enhanced and index strategies through a variety of structures that include separate accounts, mutual funds, iShares (ETFs) and other pooled investment vehicles.

Dividend Yield: 2.60%

Five-year historical dividend growth: 12.50%

Debt-Equity Ratio: 0.63X

Cash Ratio: 1.50X

 

Taiwan Semiconductor Manufacturing Company Ltd. (TSM)

The Zacks Rank #2 company is the world's largest dedicated integrated circuit foundry.

Dividend Yield: 2.15%

Five-year historical dividend growth: 18.20%

Debt-Equity Ratio: 0.04X

Cash Ratio: 1.23X

 

MEDIFAST INC (MED)

The Zacks Rank #1 company is a leading manufacturer and distributor of clinically proven healthy living products and programs.

Dividend Yield: 3.02%

Five-year historical dividend growth: 45.90%

Debt-Equity Ratio: 0.00X

Cash Ratio: 1.31X

 

Air Products and Chemicals, Inc. (APD)

The Zacks Rank #2 company makes industrial gases as well as a variety of polymer and performance chemicals.

Dividend Yield: 2.15%

Five-year historical dividend growth: 11.04%

Debt-Equity Ratio: 0.28X

Cash Ratio: 1.37X

 

Juniper Networks, Inc. (JNPR)

The Zacks Rank #2 company is a provider of networking solutions and communication devices.

Dividend Yield: 3.47%

Five-year historical dividend growth: 21.65%

Debt-Equity Ratio: 0.39X

Cash Ratio: 1.51X

 

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Juniper Networks, Inc. (JNPR) : Free Stock Analysis Report
 
BlackRock, Inc. (BLK) : Free Stock Analysis Report
 
Air Products and Chemicals, Inc. (APD) : Free Stock Analysis Report
 
Taiwan Semiconductor Manufacturing Company Ltd. (TSM) : Free Stock Analysis Report
 
MEDIFAST INC (MED) : Free Stock Analysis Report
 
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