Tuesday, August 25, 2009

* 4 Dividend Stocks For The Social Security Blues

"The problem with Socialism is that eventually you run out of other people's money."
- Margaret Thatcher

If you have followed the U.S. Social Security saga over the last several years, you know it is projected to run out of money soon. As it turns out "soon" just may be much sooner than previously expected. To make matters worse, it has been "broke" for some time, but through creative accounting that would land a private-sector CFO in jail, the government has been able to keep the appearance of solvency.

Bill Fleckenstein in a recent MSN Money article, discussed several issues facing Social Security. Here are some of the key points from his article:
  • The Social Security problem is especially important because it likely will put additional pressure on the dollar and on bonds, and exacerbate the funding crisis down the road.
  • At $680 billion Social Security is the nation's biggest social program.
  • As early as this year, Social Security will be transformed from an operation that's helped finance the rest of the government for 25 years into a cash drain that will need money.
  • There is no money in the Social Security Trust Fund -- just IOUs from the government to itself.
  • The trust fund could start running deficits in the next year. Social Security wasn't supposed to go into the red until around 2015.
  • Since 1983, when it suffered a cash crisis, Social Security has been collecting more in taxes each year than it has paid out in benefits. It has used the excess to buy the Treasury securities that go into the trust fund, reducing the Treasury's need to raise money from investors.
  • In the 1980s and 1990s, when folks worried about the budget deficit, it was reported to be lower than it would have been had the Social Security Trust Fund's money not been going into government coffers
Do you really want to bet your retirement on a system like this? I certainly won't. When planning for retirement, my underlying assumption is that Social Security will go broke before I ever receive a dime. Like everyone, I will need an income during my retirement years. I am currently planting the seeds for that income with high-quality dividend stocks that have a long track record of increasing their dividends each year. Below are some blue chip dividend stocks that eventually end up in most income investors' portfolio:
Wal-Mart Stores, Inc. (WMT) - Yield: 2.11% - Analysis
The largest retailer in North America knows how to treat customers and shareholders. WMT has rewarded investors with 35 years of consecutive dividend increases.

Abbott Laboratories (ABT) - Yield: 3.47% - Analysis
This drug manufacturer knows the best medicine for a sick portfolio is increased dividends. ABT has been dispensing higher dividends for 37 consecutive years.

Johnson & Johnson (JNJ) - Yield: 3.23% - Analysis
For 47 consecutive years this manufacturer of health care has delighted investors with increased dividends.

Procter & Gamble Co. (PG) - Yield: 3.14% - Analysis
This provider of branded consumer goods products and Dividend Aristocrat has made investors smile for 53 consecutive years with increased dividends.
As for Social Security running out of money, I think people will be paid what was promised since the government can print all the money it needs. However, what was promised may not be enough after inflation, particularly if a lot of money is printed.

Full Disclosure: Long ABT, JNJ, PG, WMT. See a list of all my income holdings here.

Tags: [ABT] [JNJ] [PG] [WMT]