Dividend stocks draw flood of cash

Targeting equities with high dividends has been attractive for some time, but what began as a short-term defensive strategy for some institutional investors fearful over falling bond returns is turning into a flood. Promises by the Federal Reserve and its peers to keep monetary policy relaxed will keep debt and cash yields low, making the returns on dividends richer than hugging benchmark indexes or buying corporate bonds of the same companies.

"We like dividend-paying stocks. The market may be returning to a time in which dividend yields become more important than price to earnings ratios," Linda Duessel, Federated's equity strategist, said in a client note. And there is more reason to by shares than credit. Any rise in government bond yields will hurt corporate bonds, whose total returns this year have been driven mainly by a fall in absolute yield levels thanks to rallying government bonds. Investors should be mindful, however, that fluctuations in underlying stock prices can easily wipe out gains from dividend.

Source: ForexYard

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