Indecent returns from utility companies

The dividend strategy is ideal for annuitants and retirees because it prevents them from being dependent on short-term market fluctuations. Some investors However, they focus exclusively on performance., which is not ideal. For example, choosing a utility company that yields 5%-6% today with a high payout ratio and little dividend growth might cause disappointment for some.

Even though retirees are looking for a high income, they should not be unaware that they will have to live off their savings for two decades, or even more! A stock that offers 6-8% of yield today and does not grow its distributions will pay you the same amount every year. The purchasing power of these revenues will, however, become increasingly weak. An inflation of 3% reduces purchasing power by 50% in 24 years. Conversely, a company that yields 3% today, but increases distributions by 6% per year, will pay a return on purchase cost of 12% in 24 years. Even if the purchasing power is halved by inflation, that's still a respectable inflation-adjusted return of 6%. 

Public services are like honey. They attract investors looking for generous income. But as their payments don't grow much over time, the purchasing power of these tops yields decreases every year. These utilities pay out most of their earnings in the form of dividends. This means that these companies can easily cut off distributions if necessary. If this happens, investors realize a much lower return on their initial investment. Of the 15 companies included in the Dow Jones Utilities Index, the majority have had their dividend cut since the 1970s.

By focusing only on getting the best return, investors could risk depletion of their capital and dividend cuts at the worst possible times. The types of companies that are appropriate for all investors, whatever their age, are the values of growing dividends.

Source: http://www.dividendgrowthinvestor.com/2012/06/dividend-investors-do-not-forget-about.html