Baby Boomers are a significant demographic segment of the U.S. population. Many are nearing retirement or are enjoying their retirement years. For an investor, an approaching wave of retirees should cause one to think about what types of stocks this demographic group will swing towards. Consider the trend and think about its logical implications.
Yesterday, today and tomorrow retirees will on average gravitate toward ‘safer’ investments. For example, you would not expect many retirees to be overweight in stocks trading under $5. You would expect a vast majority to be drawn towards stocks that are stable and pay a dividend or invest in a fund that invest in similar securities. Retirees are in most cases living off their investments, which means they are much more risk adverse than the average investor that is in their early-mid career.
When we speak of retirees ‘living off their investments’ this should cause you to think about dividends. When considering stocks, if an investor needs a stable and regular return to sustain their way of life, then they’re going to look towards stocks that have a record of paying dividends. A retiree without a regular income from a job needs to establish regularity through other means. Dividends are one of the tools to achieve this end.
The demographic fact that a much larger portion of the population will soon be retired matters to all investors. Why? It matters because emerging trends can be investing opportunities, if you can foresee them and act before the rest of the herd.
I’m contending that high yield stocks that have a reasonably stable price and have shown a history of consistently paying and growing their dividend distributions are going to become increasingly sought after in the years to come. Companies that provide essential services, such as energy (just one off the top of my head), are going to be more attractive to a growing portion of investors.
What is an investor to do? This trend is slow moving, so it’s not as if you need to run out and buy today. As an investor I would find companies that are stable, pay sizable dividends and are providing a product or service that people will turn to whether it’s great or not so great times economically (you may want to look at funds, too). After you have made your selection of prospects, think about what price you’d like to buy in at. Finally, sit and wait for the market to go to where you want the stock’s price to be.
If you’re in your positions for the long-term, I believe you will be well positioned to profit from this trend. Greater demand for these stocks will put pressure on their share price, which will enable you to benefit from both stock price appreciation and the dividend yield. Lastly, keep in mind that if interest rates sky rocket off their current low of lows, then you should re-evaluate this strategy. A sizable risk-free rate will be enticing to the retired (this is not the case now.).