Stocks that pay dividends provide a nice inflation hedge since their revenues and net income would be affected by an increase in overall prices paid by consumers. Dividends soften losses during bear markets, and they provide the only sources for investment gains in troublesome times. In addition, dividend income takes away the need to sell large chunks of your portfolio in a declining market. Retirement income could be solely derived from dividends and their growth would compensate the dividend investor for the erosion in the purchasing power of the dollar.
If a retiree holds a diversified portfolio of stocks which have the ability to grow their dividend payments over time, they would be well prepared for retirement. They should be focusing on stocks with high yields and ability to grow dividends; stocks with average yields but with above average dividend growth and some domestic and foreign index funds for diversification.
http://www.dividendgrowthinvestor.com/2008/03/case-for-dividend-investing-in.html
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