Several years ago I had a checking account that paid 4% interest on the money I had in that account. To get that rate, I had to jump through several hoops including setting up direct deposit of funds into that account, completing 10 debit card transactions each month, etc. The interesting thing with this 4% rate was that it matches the 4% withdrawal rate financial advisors often recommend to clients who have retired. If the portfolio were to grow at an after-tax rate of greater than 4%, then the client would not have to tap into principal for expenses and the portfolio could grow to keep up with inflation. We discussed some of this in our What’s Your Number? series of articles here, here and here.
As time progressed, the rate I was receiving on that checking account came down just as we saw with other interest yielding instruments including CDs, preferred shares and bonds. Investors flocked en masse to stocks and especially dividend paying stocks. They felt that there is no alternative (TINA) and stocks could help with both capital appreciation and throw off some income. Dividend growth stocks were a particularly popular sub-segment, as they provided exposure to companies that not only paid a dividend but increased those dividends year after year and sometimes decade after decade. Dividend Aristocrats were companies that had increased their dividends for 25 consecutive years, which was a tall order considering the last 25 year period encompassed the 2001-2003 bear market, the 2008-2009 Great Recession and the COVID-19 pandemic.