I've been investing in individual equities for nearly 50 years (40 professionally), and I've never owned one that didn't pay a dividend. I don't remember hearing about dividend "achievers", "champions", or "aristocrats" back in the '70s; I just felt that dividend payers were a safer investment than the others.

Over the years, up markets and down, I came up with additional "quality checks" to assure myself (and my clients) that the companies we owned were "fundamentally" better than most. Adding a NYSE only restriction and, a B+ or better S & P ranking requirement upgraded the field. Then, a "less than 5% in any one entity" diversification discipline, managed the risk "inside" each portfolio.

• High quality dividend paying companies seem to fall less precipitously during corrections and tend to rise faster during rallies.  Rarely do "achievers" cut their dividends or go out of business. You can ride out the storms called corrections much more securely in a boat of this quality.
• In the three major meltdowns since the 70's, only government intervention during the "financial crisis" caused any high quality dividend payers to go under.

For me, these "risk minimized" equities, were dubbed "Investment Grade Value Stocks"(IGVS), and they were the only ones ever finding their way into managed portfolios... but problems developed in spite of the quality, diversification, and income.

Gradually rising price levels have actually became a problem!

Rallies kept getting longer and corrections lasted months instead of years. As profits were realized, fewer and fewer IGVSs were at suitable prices for new purchases... splits seemed less frequent. Elevated valuations increased market risk while reducing current dividend yields. Equity buckets contained too much cash, particularly in times of low interest rates.

• Over the years, private REITs, MLPs, and some equity CEFs were used as equity bucket "fillers"... many of the former were those that reside on the "dividend achievers" list. More recently these non-individual equities have pretty much become the primary occupant.
• Managed equity CEFs were particularly interesting as they contain many "dividend achievers" but in vehicles that lend themselves more easily to trading and profit compounding... this in addition to the huge dividends they produce.

Dividend Achievers, Champions, & Aristocrats

The latest "dividend achievers" list contains 260 equities; over the years, I've traded nearly 60% of them. These are excellent companies with an average current yield of 2.7%. The 15 entities with yields above 6% are mostly REITs and MLPs. The largest individual sector appears to be utility companies.

The "achievers" have increased their dividends every year for at least 10 years. The 133 "champions" and 57 "aristocrats" have increased dividends for 25 or more years; both have fewer REITS and MLPs inside, but roughly the same current yield as the "achievers"... less than 3%. Few, if any, pay monthly, and I'm guessing that year end "bonus" dividends, capital gains distributions, and returns of capital (ROC) are a rarity.

• Yes, there are situations when an ROC is a good thing... when you have the luxury of reinvesting it selectively as opposed to spending it. Those who criticize ROC securities are the same folk who either sell securities annually (directly depleting capital) or hold huge uninvested reserves to provide their clients with monthly spending money

Many equity dividend investors use DRIP (dividend reinvestment programs) arrangements to automatically purchase more shares of the companies they own, regardless of current price, thus perpetuating the low current yield that is pervasive in such programs. In my experience, equity dividend portfolios tend to be highly concentrated in a small number of positions, thus creating poor diversification in an otherwise high quality environment.

Equity dividend programs (with DRIP activated) allow investors to operate on "auto pilot" while both portfolio values and annual income numbers tend to move higher over time. Such complacency is dangerous. Because even though the portfolio income is growing, the current yield is falling, and unable to ever bring the portfolio into a state of "retirement readiness".

Depending upon how many REITs or MLPs are in the mix, the spending money will always be well below the minimum 4% withdrawal level that most advisers deem necessary to withdraw during retirement. Eventually, monthly expenses and emergency needs will be met through the sale of securities. A capital preservation problem in IRA portfolios; a possible tax problem for all others.

Improving Yields & Diversification While Lowering Long Term Tax Liability

A yield improvement (not quite steroidal) could easily be "programmed" into equity dividend portfolios... keeping in mind that there are over 250 "achievers" to choose from. Instead of "DRIPing" the dividends, use the monthly cash flow to add to positions that have fallen in price, thus increasing current yield and reducing cost basis at the same time.

Next, establish profit taking targets (I use 10% with equities, less during market highs and corrections) and discipline yourself to pounce without looking back. Compounding the capital gains by establishing new positions restores sound diversification to otherwise poorly diversified portfolios.

While these actions will improve income and diversification, they will not bring portfolios to "retirement readiness".

Retirement readiness is a state of portfolio income preparedness that allows you to make this statement, unequivocally:

• Neither a market correction nor higher interest rates will have a negative impact on my retirement income; in fact either condition will help me grow my income even faster.

Unless your portfolio is generating more income than you are withdrawing, you will be forced to liquidate assets to pay the bills; the equity dividend approaches I've seen would have trouble preventing this from happening.

Dividend Investing on Steroids

• I'm going to describe an approach which will contain much of the same "stuff" that a normal equity dividend portfolio contains... but please understand that I would never actually design a retirement portfolio that is solely invested in equities.
• No matter how good the companies are, equities are never as safe as income purpose securities, and rarely, if ever, produce the same level of income.

Equity closed end funds (CEFs) are professionally managed portfolios designed to produce both gains in market value and exceptional dividend income. My portfolios contain selections from a 67 fund selection universe with dividend histories of from 5 to 90 years... an average of 19.5 years. Only nine have less than 10 years payment experience for you to examine.

These "select" CEF portfolios are provided and managed by 32 different institutions, including: Blackrock, Eaton Vance, Fidelity, Gabelli, Cohen & Steers, John Hancock, and Nuveen. The average current yield is over 9%; the average price just $13.60.  The two lowest % dividend producers (ADX and PEO) have a long history of paying significant annual "special" dividends... check it out at cefconnect.com.

Forty-one of the funds pay monthly dividends, the other 26 pay quarterly. All sectors are represented, public REITs and MLPs are included within several CEFs, and the average fund contains 188 individual positions. Only five have less than 50 positions inside. Profits have been realized on 45 of the 67 positions... since January 11th 2019.

Even if you were to bump up your annual retirement drawdown to 6% per year, this equity CEF universe could allow you to selectively reinvest (compound) the remaining 3% + all of the capital gains and "special" dividends received throughout the year.... a perpetual "working capital" growth machine.

So, I have a suggestion for all of you who are equity dividend believers, and I agree that it is a safer and more sustainable approach than any of the much more speculative varietals I've experienced. Try this:

• Add a diverse handful of experienced CEFs to your portfolios over the next two or three years.
• Appreciate the income and reinvest it selectively instead of robotically.
• Take some reasonable profits.

Eventually you'll lean back in your desk chair and contemplate that age old question: Just when is 3.0% better than 9%?