5 Ideal Dividend Payers for Future Rentiers

There is no doubt that the market is gloomy. Since 1998, apart from a few interesting entry points such as in 2003 and 2009, there have been few opportunities to obtain extraordinary returns. The fault lies with a bubble that emerged on the stock market in 1997 and that we are still paying for today. The good news is that we are once again getting closer to a market valuation correct. It will certainly take a little more time, an improvement in the fundamentals of the economy and/or some corrections on the market, but it is an opportunity to already think about the future...

In a previous article, we were interested in ideal securities for rentiers. Today we are looking at those that allow you to become one. In this case, the income received today loses importance in favor of that tomorrow. What matters is therefore the the company's ability to significantly and sustainably increase its dividend. With an investment horizon of 10 years, most dividend payers that pay increasing dividends become more interesting than those that pay high but stable distributions. This is often the case even below this interval. Beyond that, increasing dividends are significantly more lucrative, thanks to the magic of compound interest. For example, a company that offers a performance of 3% today and which makes it grow at an annual rate of 10%, makes it possible to obtain a return on the purchase price of 4.8% in 5 years, 7.8% in 10 years, 12.5% in 15 years, 20.2% in 20 years, etc.

The strategy of increasing dividends therefore makes it possible to preparing the ground for a future rentier. It requires patience because the income may seem modest at first, but it clearly pays off in the long term. However, it requires focusing on quality companies that are strong enough to pay and grow their distributions over the long term, regardless of the micro or macroeconomic situation.

Traditionally, these companies are found in sectors such as consumer goods and/or healthcare. If we refer to the Maslov's pyramid of needs, individuals first meet their physiological needs, before thinking about meeting their other needs, particularly social ones. In times of crisis, they would therefore use their income essentially to ensure their primary survival needs, the rest being set aside to ensure security needs. Although sometimes contested, Maslov's theory explains quite well the defensive nature of societies active in consumer goods and health.

Furthermore, these securities must display a certain margin of safety in relation to the payment of their dividends. If profits easily cover distributions, this means that the dividend can be increased in the future, even if the company goes through a bad period.

In summary, we must therefore focus on quality actions which:

• show long-term stability in dividend payments
• are experiencing a substantial growth rate in their distributions
• generate sufficient profits to ensure future payments and growth

By selecting the first five values of our portfolio, namely CL, PG, WMT, CLX And JNJ, we obtain on average a yield of 2.7%, for an annual growth of 12.4%, with 44 consecutive years of dividend increases and a distribution ratio of 43.7%. These five titles can therefore constitute an excellent basis for a future rentier portfolio (within a time horizon of at least 10 years).

Even if the income sought is a priority, we do not want the capital to deteriorate. It can in fact be used gradually during the transition to active annuitant, or kept for a possible inheritance. By focusing on sustainable and quality securities, we ensure the preservation and growth of capital.. However, we must also take into account the currency risk, even if in the long term this effect tends to diminish compared to the profitability of shares.

Investing only in domestic stocks may seem like a good idea at first glance, but that is to forget that Globalization has made the notion of a national market completely obsolete.. Wanting to avoid the weakness of the dollar or the euro by investing in Japanese, Swiss or Canadian companies means buying companies that will have to export to countries where the currency is weaker than theirs, and therefore reduce their margins. It will be argued that we can limit ourselves to smaller companies that work only on the domestic market, but here too we forget that they depend on the good health of large capitalizations, their subcontracting, their purchases and the income of their employees.

In short, rather than wondering about the currency in which we invest, it is better to focus on the quality of the security. In this case The best providers of growing dividends are currently in the US market. On the other hand, to cover your back, you can complete this portfolio with a title like CVX, 4^e oil company in the world, generous in dividends and which offers good protection against fluctuations in the dollar.