Just a thought; I am a BP long and a retiree. I have a number of 401k plans to help me in my retirement years. But I have noticed that these 401k plans are limited to mutual funds,and their are various different funds; large/medium/small caps, value funds, growth funds, index funds etal...........
All of these funds have good stocks in them, but generally all of these funds also have stocks that have performed poorly over the years and continue to do so. Many of the stocks in these mutual funds pay no dividends, so the annual divvy payout from these funds is below normal. So I tried a different approach.
I transferred all of the funds from one of my 401k plans into a tax deferred IRA rollover plan and created my own Energy/Railroad ETF. I decided to diversify and invest only in large cap stocks that pay at least 3% dividends anually and up to 8%. These stocks include OXY, APA, BP, ESV, NE, COP, MRO, ERF, LRE, CSX, and NSC.
One key point about the dividends in this IRA; at whatever point I begin withdrawing funds, the dividends will help at insuring that I don't run out of savings/investments/money before I die.
Therefore, I have created my own energy/transportation mutual fund/ETF that only has the stocks in it that I want. I believe that it will outperform the usual mutual funds because of the good dividend payments, because of the good/hand chosen stocks, and because I believe that energy/railroads will do well in the long run.
Just a thought.
Its risky to invest in just one or two sectors. If this particular 401k is only 10-20% of your retirement savings its no big deal but if it is much more than that I would diversify. Being a BP retire myself, do you know that BP's plan has a number of mutual/bond fund mixes that are managed for just 0.1% a year? They are a good way to go also. Relatively safe, no worries and you don't have to watch them if you rather go fishing, hunting, skiing, golfing, travelling, hotpotting etc .like I do.
"Its risky to invest in just one or two sectors. If this particular 401k is only 10-20% of your retirement savings its no big deal but if it is much more than that I would diversify"
Great point Laaex, you are absolutely correct, diversification is of the utmost importance and in my case the self-directed IRA, that I posted about, does represent only about 10% of my retirement savings assets.
I've seen people that I know who have had all their retirement savings in one sector/basket. If you had invested all your savings in high-tech, during the bubble or communications (Lucent/Norte/Worldcoml), you would have ended up with nothing.
DIVERSIFY, DIVERSIFY, DIVERSIFY!!!!!!!!!!!!!!!!!!!!!!!!
Many will argue that you should not buy a company just for the dividend. And, we can all find companies that paid good dividends the day before they died. However, there is plenty of academic research that shows, over time, dividend paying stocks do better than non-dividend paying stocks. I think your strategy is sound.
Sure, you need to do your homework. Make sure that earnings cover dividends. But, the strategy is good. It is similar to what I do.
Scanfan, you ask, "Any opinions on dividend paying preferred stocks?"
Firstly, I don't like preferred stocks for a number of reasons. (I'm assuming that you are purchasing them outside a tax-deferred program, such as an IRA or a 401k.) They may offer you a yield of a couple of percentage points higher than 5%, but their dividends do not receive the benefits of being taxed at the 15% capital gains rate. So you lose your 'higher divvy' to taxes. And preferreds are much like bonds, stable prices but little chance in the appreciation of the pps.
I believe that 'common' stocks of good companies, with a good dividend payouts, will outperform 'preferreds' in the same companies 100% of the time, over the long run.
If you want to buy preferreds for your IRA or your 401k, you won't be taxed, until you begin withdrawing your funds from your retirement account. But, I still believe that, over the long haul, common stocks of good companies, with a good dividend payout, will outperform preferred shares or bonds 100% of the time.
I don't see any logic in buying and holding preferreds either inside or outside a preferred account.
I'm not dogging on your idea, I think it's great that you've taken initiative and put your retirement into your own hands without getting ripped off by large institutional investors and their fees. My one critique would be that you should never buy a stock just because they pay dividends. There are companies that take out debt in order to pay their dividends (look at some of the car companies). Do you think a company that does this is a "sollid_company?"
As for BP, I'm long on them as well. But, I'm long not because of the dividend (although that's great) but because of the fundamentals of the company and because it's undervalued.
Sentiment: Strong Buy