The financial crisis in 2008 created the need for major changes in central bank policy.  Specifically, this meant reducing interest rates to historic lows and injecting unprecedented amounts of monetary stimulus in a series of quantitative easing programs.  While this did help support the broader economy, it also created a scenario where it became increasingly difficult to find yield opportunities in the broader financial markets.  All of the evidence suggests that the economy (both in the US and abroad) is improving — but this does not mean that we will see any significant changes in interest rate policy before the end of this year.

This means that stocks with high dividend yield have a bright outlook with very little reason to believe we will be seeing substantial moves to the downside before the end of 2014.  This gives investors a solid opportunity to begin moving into dividend stocks for long-term positioning.  For those that are planning for a retirement portfolio, the current conditions could help to create a long-term bottom in stock selections that offer strong and sustainable dividend yields.  Here, we will look at three potential stock choices for those looking to gain exposure to these sections of the market.

Prospect Capital (PSEC)

When investors are looking for dividends, it is difficult to ignore the advantages of Prospect Capital (PSEC), which is a business development company (BCD) that has shown tremendous rates of growth over the last three years.  Most investors are drawn to its massive dividend yield (currently 12.3%).  But there are many more reasons to buy into this stock, given Prospect’s impressive performance history, strong leadership and well-managed investment strategy, and valuation discount when compared to the rest of the industry sector.  When planning for retirement, it is important to select stocks that will be able to honor its dividend payouts for the life of the investment.

Prospect’s debt-to-equity ratio is below 50%, an indication of conservative leveraging relative to its sector counterparts.  This means that the stock is less likely to experience erratic price volatility if markets start to turn south from their lofty levels.  Valuations in Prospect Capital could not be described as “lofty,” however, as the stock is currently trading at a NAV discount of 8.3%.  Deals like this are rare these days in the financial markets, so in PSEC we see an excellent opportunity to start building exposure at current levels, with the intention of holding onto the stock for the long term.

Large Caps

Of course, not all stocks can offer dividend yields that are as rich what is seen with Prospect Capital.  But there are still many stable large cap choices that should be considered when looking to buy and hold stocks through to your retirement period.  Stable stock histories can be seen in companies like Johnson & Johnson (JNJ) and Exxon Mobil (XOM).  What these companies offer to your portfolio is a long term history of positive growth and a sustainable ability to maintain its dividend payouts.  JNJ is one of the market’s most diversified stock choices, with key businesses in pharmaceutical goods, consumer items, and medical devices — all highly essential sectors.  JNJ offers a dividend yield of 3.4% but this has been coupled with earnings growth that spans decades.

Volatility for stocks like JNJ tends to be limited, which means that the stock is also able to withstand periods of market uncertainty if economic data starts to turn south.  This feature is an advantage of a stock like XOM, as well given its stable valuation history and first-rate positioning in energy markets.  One of the factors that will drive growth at Exxon Mobil this year can be found in the steadily increasing demand for energy products in both developed and emerging markets.  XOM offers a dividend yield of 2.7% and this comes with double digit gains over the last 10 years — relatively impressive given the broader market turmoil that has marked the period.  Overall, PSEC, JNJ, and XOM should be considered by any investor that in planning for retirement.  Furthermore, the market’s need for yield in the current environment essentially means that now is a good time to start gaining exposure to these types of stocks.