Will Dividend Stocks be the Big Winners in the Budget Deal?

A two-year budget deal between the heads of the House and Senate Budget Committees revises pensions for both military and civilian government employees. It is expected to pass the House and Senate and be signed into law on Tuesday. That is a significant move as Members of Congress are willing to alter pensions in an election year. For investors, it is notable as it increases the attractiveness of stocks that pay dividends such as McDonald's MCD, Caterpillar CAT, China Mobile CHL, and Coca-Cola KO to provide for retirement needs.

The budget deal is another step is shifting pensions paid by the Federal Government from being defined benefit to defined contribution.

A defined benefit pension is one is which the recipient knows how much will be received from the former employer. By contrast, a defined contribution plan has the recipient knowing how much will be kicked in by the employer as part of the employment agreement. Fewer and fewer defined benefit pensions are being offered, both in the public and private sector.

That is placing the responsibility of financing retirement needs on the individual. For those purposes, there is no better investment vehicle than a stock that pays dividends with a history of increases such as McDonald's, Caterpillar, and Coca-Cola. There are many publicly traded companies like those that are ideal for covering retirement costs with dividend payments.

Even though these firms have a tradition of raising the dividend, that does not mean that the yields are low. At present, the average dividend yield for a member of the Standard & Poor's 500 Index is around 1.9%. China Mobile has a dividend of 3.78%. The dividend yield for McDonald's is 3.40%. For Caterpillar, it is 2.81%. Coca-Cola pays a dividend of 2.79%.

There are many other excellent stocks that pay above average dividends, too.

Another article on Benzinga reviewed the factors that result in stocks that pay dividends having an enduring allure. With the Federal Government and other entities clearly moving away from defined benefit pensions, more should be relying on dividend income from equities to pay for retirement costs. The long term appeal of these investments have been demonstrated to the reward of the shareholders.