Expect More Good News For Dividends (DVY)
Jim Trippon: Dividend investors have found this year and even the last several years to be good ones. Since the stock market averages began to come back after the 2008-2009 financial crisis, investors seeking income and yield have found a friendly home in dividend stocks. The S & P Dow Jones Indices in its early October press release had a lot of interesting data about dividends which shows the strength of such stocks. Cash payments increased by 19 percent for the year, for example, according to Howard Silverblatt, Senior Index Analyst at S & P Dow Jones Indices. Silverblatt expects to see double digit growth for dividend payments in the fourth quarter of 2012, with the potential for more growth next year.
Bond Vs. Dividend Yield
Search For Yield
Silverblatt spoke of investors â€œsearching for yield,â€ and thatâ€™s been a vivid theme in these markets. As we have written about often, the paltry yields in Treasurys, CDs, and money markets have effectively reshaped the income investing terrain. For investors who have either read about or lived through the high interest rates that prevailed in the 1970s and didnâ€™t fall significantly until the next decade, the history of CDs paying 15 percent or more must seem like fantasy fiction. Furthermore, we have had a situation of the worldâ€™s central banks shoveling easy money into the system, with the interest rates which were low even prior to the ECB easings in the face of recognizing the eurozone debt crisis, as well as the triple quantitative easings undertaken by the US Federal Reserve. Thereâ€™s no question that the central bankersâ€™ policy has been to try to steer money into equity assets. This is in the wake of a previously lackluster decade for the S & P, as its essentially flat performance for the last decade shows that automatic investing into stock indexes for capital appreciation hasnâ€™t necessarily been the best investment strategy. Selective dividend investing, however, has been worthwhile.
More On The Numbers
The average yield on dividend paying stocks has fallen slightly from the end of the second quarter to the end of the third quarter, from 2.77 percent to 2.66 percent. This, as was pointed out in the S & P Indices article, is due to the rising stock prices in the quarter. There is also room for payouts to grow. At the end of the third quarter, the payout rate remained near its historical low at 34 percent, well under its historical average of 52 percent. As weâ€™ve pointed out in previous articles, many companies have done well despite the sluggish economy due to streamlining their operations and have amassed considerable amounts of cash. The relatively low payout rates are more in line with the cautious approach companies have been following on capital expenditures and hirings. But should there be clearer signals of greater improvement on the horizon for the economy, investors will likely be rewarded with higher dividend payments.
Dividend Growth Vs. Inflation
The array of dividend choices for investors in such a positive environment is wide indeed. Investors can put together a portfolio that suits their needs, whether itâ€™s a retirement portfolio for many years hence or with a closer time horizon. Dividends can be whatever portion of your investment mix that you decide. Some conservative investors build their entire portfolios with dividend stocks (NYSEARCA:DVY) and are fortunate enough to live off the current income. Investors can also scale the risk to their personal tolerance by selecting from stable, lower paying dividend stocks, to more exciting but slightly more risky medium and higher yielding stocks.Whatever approach an investor chooses, thereâ€™s likely one thatâ€™s suitable for substantial profits.
Jim Trippon, founder ofÂ Trippon Financial Media, Inc., is a maverick that has dedicated his investment career to helping investors make smarterÂ financialÂ and stock selection decisions. Trippon,Â an internationally recognized expert on global andÂ valueÂ investing, has a deep passion for finding hidden value in globalÂ equityÂ markets. Trippon started his career as aÂ financialÂ statement examiner with Price Waterhouse which allows him to dissect a public companyâ€™s financialÂ picture and better identify hidden gems. Tripponâ€™s savvy approach toÂ investingÂ and personalÂ financeÂ makes him in high demand by major media who seek his unique perspective on stocks and global economics. He hasÂ been featured in top publications both in the US and abroad includingÂ Bloomberg, Investorâ€™sÂ BusinessÂ Daily, The New York Times, The International Herald Tribune,Â StockÂ FuturesÂ and Options Magazine, The Bull and Bear Financial Report and he regularly appears on broadcast television including as an on air contributor to CNBC, CNN, Fox Business, and Fox News.
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