A Simple Way You Can Boost Your Nest Egg

Most investors know (or should know) the tried-and-true methods to help nest eggs grow.

Shift money automatically from your paycheck to a savings plan; take advantage of your employer's matching contributions to 401(k) plans; eliminate (virtually) all consumer debt; track and trim household expenses; reduce investment fees; and, of course, save more than you're saving now.

But with the economy and markets still struggling, investors are seeking, additional steps to shore up retirement savings.

Here is another tip. Dividend paying stocks:

In 2009, more companies cut their dividend payouts -- and fewer companies increased them -- than in any year since 1955.

Now, though, the tide is turning. Many companies, after recent spending cuts, are flush with cash. And, as such, dividends are likely to be restored or increased.

In April alone, 25 companies in the Standard & Poor's 500-stock index raised their dividends, and none cut them.

How can dividends help your nest egg? Even in tough economic times, many companies continue to make payouts, generating a steady stream of income. And that income tends to grow over time as companies boost their dividends. Payouts on stocks in the S&P 500 grew at an annual compound rate of 4.7% between 1980 and 2009, compared with an annual inflation rate of 3.7%.

Of course, dividend-paying stocks have risks. A handsome payout is no guarantee that the share price of the stock itself won't fall. In 2008, an investment of $10,000 in S&P's "Dividend Aristocrats" -- companies in the S&P 500 that have raised their dividends every year for at least 25 years in a row -- would have generated a respectable payout of almost $400. But the value of the stocks would have fallen to about $7,800.

Still, getting some form of return on an annual basis appeals to more and more people especially given low yields elsewhere.

Turning to a mutual fund that focuses on dividends is a prudent approach. Among individual companies with solid fundamentals, shares of Coca-Cola, Johnson & Johnson and Procter & Gamble currently yield 3% or more. Selected other companies yield even higher. Call me for additional information.

Disclosure: I hold positions in Coca Cola and Johnson & Johnson