A whopping 378 stocks on the S&P 500 index pay dividends, but that still leaves 122 that don’t. Here are our Top 10 stocks that should be paying a dividend to their shareholders. The benefits to paying dividends are numerous. High dividend payouts attract a solid base of long-term investors in a company, which helps put a cap on share volatility. Both retail investors and fund managers love dividends for their income and compounding returns, so without further ado, here are 10 big-name stocks that should start paying a dividend.
1. Google Inc. (GOOG)
2. Apple Inc. (AAPL)
3. Amazon.com, Inc. (AMZN)
4. eBay Inc. (EBAY)
5. Yahoo! Inc (YHOO)
6. Dell Inc. (DELL)
7. Kohl’s Corporation (KSS)
8. Berkshire Hathaway (BRK-A)
9. Amgen, Inc. (AMGN)
10. WellPoint Inc. (WLP)
There are several, high dividend paying stocks, recommendations that appear on several websites, newspapers, magazines, blogs and columns. A point upon which many of us tend to ponder is, what makes certain stocks the best high dividend paying stocks? Is it the history of the company, or is it the management, current projections, revenue, economic conditions, that makes the share and stock price such a great influence on the dividend? Well, yes and no, because if you take a bird's eye view, almost all aspects of the economy tend to affect a company's stock prices and ratings.
Here's the catch, even a single small event can cause the stock price and dividend issue to fall down or shoot up sky high. Thus, logically, studying the economy and the facts that surround the company's operations matter a lot when you are looking for high yield stocks. You must know everything about the company, in and out and also the areas of the economy in which it ventures. You may also consider indexes and other such resources, such as the 'the dogs of the Dow' by Dow Jones Index, however at the end of the day, you have to do three things; observe, research and think. There is nothing such as luck and no stock market is a gold mine, unless you dig in proper quantity with the help of the maximum quality.
Jeremy Siegel has been a well-respected name on Wall Street for years. His Stocks for the Long Run is a sacred text for any long-term investor, and in 1999, he accurately predicted the Internet bubble. So when Siegel talks, it's a good idea to listen. I recently finished his 2005 book, The Future for Investors. Siegel spends the first half of the book making crystal clear the two traits that, he argues, will always reward long-term, buy-and-hold investors. 1. A difference between actual and expected earnings growth, and 2. Dividends.
Now, Siegel was looking at returns over the long-term horizon. Sure, capital gains will yield strong results in the short term, but there's nothing that'll supercharge your returns in the long run like dividends. By reinvesting all of your dividends, the magic of compounding takes over, accumulating more and more shares of a company at almost no cost to you.
With earnings season in high gear, dividend-paying stocks are starting to build speed as well. Although the last few weeks have been quiet for dividend boosts (not surprising given the market holidays that surround year-end), we're finally starting to see companies announce new payouts to shareholders once again. In the last week, 14 companies announced increases in their dividends. But what's most significant about those yield hikes is who is making them. Last week's dividend increases included a fairly even mix of blue chips and small-caps, a favorable sign that U.S.-traded firms of all sizes are seeing financial improvement.
Of the 14 firms that increased their payouts to shareholders, six had previously increased their dividends during the third week of January 2010. That record of regular increases is a good sign for income investors; it signals a return to dividend normalcy. Right now, companies that are willing to part with cash in arguably tough times are worth a second look. And while companies that pay dividends are great, the companies that increase those dividend payouts over time are even better.
“How come no one ever writes about income investing outside the U.S.?” One reason may be that investors don’t have to go to foreign corporations for global dividends. Many U.S.-based dividend payers earn lots of their revenue overseas — Philip Morris International (PM) is legally headquartered in New York but gets 100 percent of its revenue selling Marlboros and other tobacco products outside of the 50 states. Its yield is currently 4.6 percent.
But for those with more exotic tastes, there are more direct ways to buy global dividends. Plenty of foreign companies trading on American exchanges through ADRs offer good dividends. There are also exchange-traded funds (ETFs) and mutual funds focused on foreign dividend stocks. The attraction of some of these stocks — in addition to any prime business fundamentals — is uncommonly high yields. According to Factset data, the dividend yield for the MCSI EAFE, an index of developed market firms outside the U.S. and Canada, was 2.93 percent through December 31, 2010, compared to 1.86 percent for the U.S.-focused S&P 500.
Many investors get excited when the market is going up. After all, that's when you make money, right? While that may be true, I tend to get a little despondent as the market climbs because I know that bargains are steadily disappearing. And -- if you ask me, at least -- investing success comes from finding and buying stocks at prices below what they're actually worth. When I'm able to do that right, everything else usually takes care of itself.
Well, we've got a serious rally on our hands right now. Not only have we seen huge gains from the 2009 bottom, but the S&P 500 has tacked on more than 20% over just the past few months. The 10-year average price-to-earnings multiple that professor Robert Shiller tracks has now climbed above 23, which, no matter how you cut it, is not cheap. But there are still stocks out there worth buying right now. Here are three favorites of mine that are not only still value-priced, but they all pay you to own them: 1. Intel (Nasdaq: INTC), 2. Abbott Labs (NYSE: ABT) and DPL (NYSE: DPL).
The investment strategy of "buy and hold" has lost favor of late. However, for long-term investing, there are still strong stocks that, I believe, deserve the title "forever" stocks. A forever stock is simply a stock that you should buy and hold forever. While these stocks may experience periodic, even annual downturns, in the very long term they have consistently increased in value and returned dividends. As a result they are strong additions to portfolios for those building a nest egg for retirement or paying for college educations 15 to 20 years out.
Prospects for forever stock purchases are companies strongly inclined to be resilient regardless of the economic situation. Dividend history is also an important factor. Early in your savings plan, it is prudent to reinvest dividends, allowing them to increase the growth of the overall stock portfolio value. Later in life, if necessary, the stock principal can be held while dividends are collected as supplemental retirement income. While each individual investor should investigate and evaluate stocks based on their own tolerance for risk and the timing of their own financial needs.
Investors should consider dividends when building their portfolios. Although dividends are often viewed as boring, they can be quite glamorous given the potential they offer. And, as yield dwindles in the bond markets, it's increasingly important to consider alternatives for income portfolios. History shows that dividends are a major contributor to total returns. According to a recent Guardian Capital LP report, 58% of the total returns earned in the MSCI World Index during the past 40 years came from dividends, making income as important as capital gains.
Over the past 30 years, capital appreciation was responsible for only about a third of the returns, with dividend yield making up the balance. Dividends are generally a more reliable contributor to total returns than price appreciation because companies must be on a solid footing to sustain dividend growth. Those with a track record of increasing dividends typically have a sustainable advantage and are doing well in their respective industries.
Investors can't get enough of dividend stocks. With their unique combination of capital gain potential and regular income, stocks that pay dividends have never been in greater demand. One of the most influential groups of investors who have been turning to dividend stocks lately have been those in or near retirement.
After all, retirees need their long-held investment portfolios to generate cold hard cash -- cash they can't afford to go without. With more traditional conservative investments, such as bank CDs and Treasury bonds, paying extremely low interest rates lately, retirees have had difficulty making ends meet -- and the temptation to turn to riskier investments like stocks has become increasingly difficult to resist.The question, though, is how to earn dividend income without exposing yourself to a huge amount of risk. Although dividend ETFs don't eliminate the risk of owning stocks entirely, they do help spread out that risk -- and the different strategies they follow hold some clues that observant investors can follow on their own.
During his multidecade career, Warren Buffett has captured the minds of followers through an interesting mix of wildly successful investments and down-home, folksy charm. In the absence of self-penned autobiographies or memoirs, authors have spent countless hours attempting to uncover the characteristics that make the Omaha, Neb., native so successful in business. An examination of Buffett's Berkshire Hathaway (BRK.A) empire reveals three notable qualities that, when internalized, can help investors benefit in times of economic prosperity and protect them in the event that the markets turn south.
Famously, Buffett has said that his favorite holding period for an investment is forever, and indeed a number of his positions have been mainstays in the Berkshire portfolio for decades. In an interview after his landmark decision to acquire the remaining shares of Burlington Northern Santa Fe Railroad, Buffett turned his attention to the long term, forecasting that railroads will still be essential 100 years from now. By focusing on the long term, he has weathered a number of economic crises, including the most recent economic meltdown. At the height of the crisis, while many people were fleeing the markets, Buffett penned a now-famous opinion piece in The New York Times, "Buy American. I Am." In the article, he insisted that, contrary to the beliefs of many observers, the turmoil provided an ideal opportunity to take advantage of the inevitable U.S. recovery.
If you are a dividend investor, you can't just pick the stocks with the highest dividends. That may seem counterintuitive, but there is often a reason high dividend stocks appear so attractive. This can include problems in the underlying business, a dividend payout ratio that is much too high and threatens future growth, or a debt-to-equity ratio that makes investors believe the company can't survive. And that is just the beginning! Take a few moments to discover some things to consider when finding the highest dividend stocks for your investment portfolio ...
Like all things in life, dividend investing is rarely as simple as it sounds. Finding the highest dividend stocks can be fraught with danger because companies often have high dividend yields for a reason. Most commonly, it is the result of investors avoiding the shares, which can occur because they believe that the dividend is in danger of being cut or they think the business is in trouble and might not survive long-term. I explained some of the pitfalls facing investors who search for the highest dividend stocks in an article called Watch Out for the Dividend Trap - When High Dividend Yields and Low P/E Ratios Are an Illusion.
Contrarian investors should utilize times like this to differentiate between stocks that are dropping for fundamentally sound reasons -- and those stocks that are simply being dragged down because of general market concerns. Sure, there's plenty to worry about -- gigantic federal deficits, sovereign debt problems in Europe, an economic slowdown in China. But let's not forget that in the midst of all of this volatility lies the prospect to grab some great companies at dirt cheap prices.
In particular, I'm a huge fan of dividend stocks. Renowned professor Jeremy Siegel has illustrated that from 1957 to 2003, when reinvesting dividends, the S&P's 100 highest-yielding stocks outperformed the market by an average of 3 percentage points. Over a long period of time, 3 percentage points can really add up. So if you can find dividend stocks trading cheaply and can separate the good from the bad, you may have found yourself a real winner.
When the market was diving and hitting its historical lows in March of 2009, we had just six stocks on our Best Dividend Stocks list. Six! That’s it! And we didn’t get bullish again until we saw the market bounce sustain itself for a few months afterward. We also didn’t go around bragging that we “caught the bottom” exactly, as other pundits would love to exaggerate they did. What those pundits didn’t tell you was that many of them had misfired on multiple bottom calls for months, before finally getting it right.
So the next time someone offers you advice about the markets — good or bad — check their qualifications first. Again, I think Tony Robbins is a master at what he does, but I wish everyone would stick to their own niche. We live, breathe, and eat the markets at Dividend.com and we are going to do the best darned job we can possibly do.
In a wildly popular November article, two commenters challenged me to back up my recommendations with my own money. Challenge accepted! I'm putting my own money into several of my previous picks, and promising you that I won't sell any of them for the next 365 days -- no pump-and-dump here.
In the coming days, I'm putting $10,000 of my personal portfolio into four dividend stocks and an ETF. Today I'll reveal their names, and show you how to access 13 more high-yielding tickers so you can build the world's most outstanding dividend portfolio for yourself.
We track the top 30 holdings of a variety of high-profile investors, such as George Soros and Carl Icahn. It should come as no surprise that the most popular of these portfolios is that of renowned investor Warren Buffett, CEO of Berkshire Hathaway (BRK.B_), esteemed philanthropist and one of the richest people in the world.
Today we're taking a closer look at Buffett's 10 highest-yielding stocks, based on Berkshire Hathaway's most recent quarterly 13F filing with the SEC, which reflects holdings as of Sept. 30, 2010. To see these stocks in action, check out the Top 10 Buffett Dividend Stocks portfolio. For Warren Buffett's top 30 holdings.
Dividends are enormously valuable to overall stockholder returns. Some studies suggest that the overall long-term U.S. market return - as measured by the S&P 500 - comes from both share price appreciation and a dividend yields at a 50/50 split over the long run. Of course, this only counts when you find companies not only capable of maintaining the dividend, but with the potential to increase the dividend payout over time.
The value in dividends to investors is first and foremost regularity. Investors looking at dividend stocks want to know that they can be counted on for many years. Secondly, the hope is that as a company's operations prosper over time, so will the dividend payout. Regularity of a dividend requires a similar regularity in cash flows. Thus businesses with stable sources of revenues occurring from the sale of essential or recurring product sales makes for a perfect dividend candidate. I can't think of a more perfect union than food stocks that pay dividends.
Dividend payers deserve a berth in any long-term stock portfolio. But seemingly attractive dividend yields are not always as fetching as they may appear. Let's see which companies in the business software and services industry offer the most promising dividends. You should understand just why you'd want to own dividend payers. These stocks can contribute a huge chunk of growth to your portfolio in good times, and bolster it during market downturns.
"Between 2000 and 2009, the average dividend-adjusted return on stocks with market caps above $5 billion and a trailing yield of 2.5% or better was a whopping 114%. Compare that to a 19% drop for the S&P 500." When hunting for promising dividend payers, unsophisticated investors will often just look for the highest yields they can find. While these stocks will indeed pay out the most, the yield figures apply only for the current year. Extremely steep dividend yields can be precarious, and even solid ones are vulnerable to dividend cuts.
When companies choose to distribute profits to shareholders, they can do so in two ways: by doling out dividends, or by buying back their own stock, which increases investor earnings per share by decreasing the inventory on the open market. Each method of payout comes with its own shareholder benefits.
Beyond boosting EPS, share repurchases also limit an investor's downside -- no matter how far the stock falls, it always has a built-in pool of buyers. And from a tax perspective, buybacks have an advantage in that they're only taxed once. Fortunately, there's no need to choose between dividends and company buybacks -- you can have your cake and eat it, too. If you're on the hunt for a bargain, high yielding dividend companies buying back their own shares can make particularly attractive picks.
Well-established, dividend-paying companies have traditionally been referred to as widow-and-orphan stocks, because they provided their stockholders with a reliable dividend stream that could be counted on as a steady income. But while they may be given such a label, the fact of the matter is that many types of investors can probably improve their portfolios by including companies that make consistent dividend payments to shareholders.
For starters, the obvious benefit of regular incoming cash received from dividend payouts should not be overlooked. Periodic dividend receipts not only provide stability to a portfolio's annual rate of return, but also provide emotional support and peace of mind for the individual investor. As the market turbulence of the past several years has illustrated, stocks can be prone to drastic short-term changes in value. When prices do happen to drop, dividend-paying stocks can often keep a portfolio on track - and keep an investor from succumbing to panic.
“Dividend investors hit the trifecta in 2010,” said S&P’s senior index analyst, Howard Silverblatt, and he argued conditions are set for an even better year in 2011. Specifically, in 2010, dividend increases were up 45%, decreases declined 82% and the forward indicated dividend rate (the estimated dividend companies will pay in the next year based on what they’re paying now) increased over 8%, which suggests a stronger year for dividend income in 2011, said Silverblatt.
On a dollar basis, companies in 2010 added $26.5 billion to dividends. The year before, they had reduced dividend payouts by $42.4 billion. One way to think about dividend income, is as your salary. “In 2010, you saw an 8.5% increase,” Silverblatt said. “This year, I think, you’ll see a 9% increase but you are still down 18% from where you were in 2008.” He added that dividend increases won’t return to their 2007-2008 levels until 2013 and, only then, “if the economy cooperates.
Berkshire Hathaway's (NYSE: BRK-B) Warren Buffett is widely regarded as the greatest investor of our time. But most people don't realize that dividend investing makes up a large part of his investments. Some of his most sizable holdings pay big yields, which gives the Oracle of Omaha cash to invest in good times and in bad.
Owning dividend companies is a hallmark of Buffett's. They fall straight in line with his strategy of owning fundamentally strong companies whose business models provide inherent advantages against competitors -- otherwise known as "moats." Such companies can consistently reinvest cash flow at high rates of return (as revealed through strong returns on equity) and pay out excess cash flow to shareholders as dividends. Only fundamentally robust and well-managed companies can afford to give their shareholders cash every year.
Dividend stocks have attracted the attention of investors across the globe in recent years. But even though most investors have come to appreciate the substantial regular income that dividend stocks provide, one thing that most investors don't expect from dividend stocks is strong earnings growth. That led me to ask the obvious question: Do dividend investors really have to sacrifice any chance of scoring big capital gains -- or are there some stocks that let investors have their cake and eat it, too?
Dividend stocks have a reputation for being conservative choices for investors who aren't interested in growth. But that reputation doesn't apply to every dividend stock. Look closely, and you can find stocks that have the growth potential to give you both healthy income and possible big share price gains in the future.
Dividend yield -- also called “current yield” is the percentage of a stock price you earn from dividends. These are usually paid quarterly, so each quarter’s yield will be one-fourth of the current annual yield. To confuse the matter a little bit, corporations declare dividends not as a percentage but as so much per share. This still does not tell you the dividend yield. To find this, divide the dollar value of the annual dividend by the current share price.
The dividend yield should be a key ingredient in your evaluation of your portfolio and in the selection of companies whose stock you are thinking of buying. Some companies pay exceptionally high dividends and yet are considered very safe investments. This is not always the case, so if you just pursue the highest possible yield, it makes sense to perform a few fundamental tests first, and to determine whether or not it is safe to buy shares.
Today, we’ll look for U.S. stocks that have a strong history of dividend and earnings growth, as well as stable dividend and earnings prospects for the coming year. To pass the screen today, stocks must have a market float of at least $1-billion (U.S.) and a dividend yield of at least 2 per cent. In addition, the dividend payout ratio must not exceed 80 per cent of the 12-month earnings estimate, dividends growth must be positive over the last year, total annualized dividend growth cannot be negative over the past five years, and the five-year earnings growth rate must exceed the median of the 2,100 U.S. companies that CPMS tracks. The expected price return on the stocks also must be higher than 5 per cent based on the median of analyst price targets.
“This is an interesting list for investors looking to get a little more conservative in 2011 given that the S&P 500 is up 46 per cent over the last two years including dividends,” said Jamie Hynes, senior consultant at CPMS. “The stocks on this list have relatively stable dividend yields of at least 3.9 per cent, far higher than short-term and even 10-year government bond rates, plus expected price returns of at least 5 per cent. With this said, there are no guarantees with equities. Three of the names on this list had a negative total return in 2010 despite ranking highly on this screen.”
Thinking small paid off big last year. Funds specializing in stocks of smaller companies gained an average of 23 percent compared with 13.6 percent for large-cap funds, according to Lipper Inc. But avoiding those big stocks could mean missing out on one of 2011's best opportunities: There's growing potential in dividends, and they're more likely to be paid by larger companies. That's because smaller companies generally reinvest profits in expanding their business. There are a couple reasons why dividend investing is likely to pay off this year:
An extension of the Bush-era tax cuts, approved by Congress in December, means Uncle Sam will continue treating dividend income favorably. And corporate America is sitting on piles of cash. During an economic recovery, corporations will be more inclined to raise their dividend payouts. "Traditional dividend investing is back in style as investors look for total return, stability, and income," said Howard Silverblatt, a Standard & Poor's analyst. "2010 was a very good turnaround year." Yet there's still a lot of ground to make up before dividend payouts reach their prerecession levels. Dividends are important because historically they make up more than 40 percent of the total return of the Standard & Poor's 500 index, with the rest coming from rising stock prices.
Dividend-paying companies are an oasis in the desert of underperforming stocks. They offer solid payouts today and the promise of capital gains tomorrow. According to a study by Ibbotson, reinvested dividends made up about 40% of total stock returns from 1926 to 2006. In fact, dividend investing is so appealing that super-investor Warren Buffett has made it a significant component of his portfolio.
When searching for great dividend stocks, it makes a lot of sense to start with companies that have been playing the dividend game the longest. Standard & Poor's has culled the dividend winners from the also-rans in a list it calls the "Dividend Aristocrats."
But beware the siren call of high-yielding stocks. A high single-digit or low double-digit yield may look attractive at first glance, but yields that fat are rarely sustainable. Consider what a dividend yield is - the current annual dividend divided by the current stock price. A quarterly dividend check will provide little comfort if you invest in a stock that ends up plummeting.
Moreover, that dividend check is no guarantee. Companies are not required to make dividend payments like they are debt payments. If times get tough and money gets tight, checks to the bank and to bondholders will get sent out before your dividend check. It's not uncommon for high-yielding stocks to slash or suspend dividends indefinitely. One only needs to look at investors who picked up shares of General Motors or any of the "stable" bank stocks in 2008 because of their alluring yields to realize that juicy dividends often don't last.
The following is a list of high yield dividend stocks that have seen institutional buying over the last three months. To compile the list, we started with a universe of about 120 stocks with dividend yields between 4% and 7%. We then narrowed down the list by only focusing on those names that have seen institutional inflows over the last three months.
Admittedly, the institutional buying has been relatively conservative for most of the names below, but it's worth pointing out that these companies are the smart money's favorite high yield dividend stocks: 1. Huaneng Power International Inc. (HNP), 2. Sanofi-Aventis (SNY), 3. CPFL Energia S.A. (CPL), 4. Digital Realty Trust Inc. (DLR)and 5. Natural Resource Partners LP (NRP).
A robust and predictable income is a big concern for retirees. They need to know how to generate enough cash to maintain their lifestyle without exposing their assets to too much risk. Social Security is obviously a key source of steady cash for retirees and some also have a pension, an increasingly rare employer-sponsored retirement plan that pays out like clockwork. Here are 10 other ways for retired folks to obtain reliable income while keeping risk in check.
The nice thing about most of these 10 methods is they can be mixed and matched to suit your personality. However, knowing exactly what to do and getting just the right mix can be a bit complicated, so don't hesitate to consult a qualified financial professional for guidance.
As 2011 begins, the growing legion of investor's seeking retirement income, are faced with the same conundrum they faced in 2010. Interest rates remain at near all-time lows which severely limit attractive investment options to meet their income needs. After being traumatized by the great recession of 2008, safety and risk aversion are of the highest priority. But alas, fixed income instruments (bonds, CDs, etc.) the traditionally safest investment vehicles offer scant yields and therefore abnormally high risk profiles at today's rates.
In contrast, the situation for high-quality dividend paying common stocks has rarely been as attractive as it is today. Current valuations of many best-of-breed, blue-chip large-cap stalwarts are historically low. With valuations abnormally low, the current entry-level dividend yields for many of these high-quality companies is higher than would normally be expected. Sensible investors can put together a diversified portfolio of these blue chips with beginning dividend yields approaching what they could earn from a 10 year treasury bond. Better yet, these portfolios can be expected to increase their dividend yield every year as they historically have.
Company earnings have always been prone to sudden spikes and swoons. That's why it's a bad idea for stock investors to rely too heavily on value signals the price-to-earnings ratios.Some changes to earnings, however, are less surprising than others. In the mid-1990s, an accounting professor named Richard Sloan uncovered something called the accrual anomaly. "Anomaly" is a word researchers have long used to describe clues that predict stock returns, on the belief that in an efficient market, such clues aren't supposed to exist. "Accrual" is an accounting term that's central to how earnings are calculated.
In theory, earnings should match cash profits over time, as positive accruals (when earnings exceed cash profits) in some quarters are offset by negative accruals in others. In reality, as Sloan's research showed, accruals are often subjective, so the accrual component of earnings tends to be less persistent than the cash component. Accordingly, stocks with earnings that far exceed cash profits tend to underperform. Those with the opposite condition, however, tend to produce rising earnings and handsome returns. The accrual anomaly isn't an accurate predictor in every case, but it's a good place to begin a search for bargain shares.
The companies that could benefit from the increase in consumer spending all have diversified portfolios of strong brand names, wide moats and high returns on equity. Their strong fundamentals have enabled them to weather several recessions over the past 2 decades and have also allowed them to increase dividends for over a quarter of a century. The companies that could benefit from increased consumer spending include:
With the end of the financial crisis of 2007-2009, and unemployment leveling off, investors are once again bullish on stocks. And six of the best consumer dividend stocks to own now are Walmart (NYSE: WMT), Pepsico (NYSE: PEP), McDonald’s (NYSE: MCD), Kimberly Clark (NYSE: KMB), Johnson and Johnson (NYSE: JNJ) and Clorox (NYSE: CLX).
The timing is right for dividend stocks. High-yielding dividend stocks are one of the few places left where income investors can harvest a solid income in this low interest rate environment. In addition, the recent extension of the Bush tax-cut laws has increased the favorable tax treatment for dividend income.
However, high-yielding stocks can be dangerous. Many times the yield is high because the price has fallen as a result of fundamental problems at the company. Also, a high payout ratio is a warning sign that a stock may not be able to maintain the dividend. Where can you find high dividend yields that are secure? One of the best dividend sectors of the market has become telecom stocks. These companies have become the high-yielding utilities of the new century. [See: "The Best Utility Stock You can Own"] While growth in the sector has slowed because of wireless saturation and fierce competition, the steady stream of dependable revenue generated by these companies make for great dividends.
Investing in dividend stocks generated major returns for investors in 2010 as U.S. companies added $26.5 billion to dividend payments, with $8 billion of that increased payout coming in the fourth quarter. The rise in dividend payments is seen as a strong indication that companies are indeed recovering from the dismal economic environment of the last two years, and analysts at Standard & Poor's expect that the trend will continue in 2011, providing a windfall to investors that could lift equity markets higher.
For the year, S&P reported that 1,729 companies increased dividend payments, compared to 1,191 companies recording increases in 2009. Only 145 companies decreased dividend payments in 2010, versus the 804 that did so in 2009. The result was this year's net gain, a far cry from the the net decline of $42.4 billion in dividends in 2009. "Dividend investors hit the trifecta in 2010," said Howard Silverblatt, senior index analyst at S&P Indices, in a statement Thursday. "Dividend increases were up 45%, decreases declined 82%, and best of all, the forward indicated dividend rate increased over 8%, implying a much better year for dividend income in 2011."
"Fidelity Dividend Growth (FDGFX), a top pick for the coming year, is one of Fidelity's more broadly diversified growth funds," says fund expert Jack Bowers. The editor of Fidelity Monitor explains, "Fund manager Larry Rakers has a structured approach to bargain-hunting that has outperformed the S&P 500 this year.
"Many investors will be tempted to sit on large amounts of cash, but those who take the longer term view are likely to be rewarded for the risks they take. Meanwhile, if you want a fund that will outperform in up markets, Dividend Growth is a good bet."
Dividend stocks will have their best year in decades this year so try to get in early. What we are looking for here ar companies with a long history of dividend payments, a strong outlook and a low PE ratio, By using this criteria you can minimise your downside.
“Low rates will prevail in 2011 and in looking for an alternative” said Shayne Heffernan, he added “we expect to see a shift to more funds, managers and institutions buying dividend stocks in 2011.” Shayne Heffernan has affirmed his strong buy on 4 dividend stocks as stand out investments in 2011. Resource Capital (NYSE:RSO), Annaly Capital (NYSE:NLY),Chimera Investment (NYSE:CIM), American Capital Agency (NASDAQ:AGNC)
When it comes to investing, there's no such thing as a sure thing. But sometimes you'll discover opportunities that are as close to a sure thing as you're likely to find -- and anticipating those opportunities can be quite profitable. You'll find one such opportunity among one of the hottest sectors in the stock market lately: dividend stocks.
In particular, being able to anticipate which stocks are likely to increase their dividends -- and when those dividend increases will take place -- can give you a leg up on other investors. And with companies that have consistently paid higher dividends year in and year out for decades, you can be reasonably confident that they'll deliver this year as well. Dividend investors pay a lot of attention to companies on the Dividend Aristocrats list, and with good reason. It takes a lot to maintain a history of rising dividends for a quarter century, especially as the economy moves from boom times to recessions and back again.
Personally, I’ve made a vow to myself that I won’t buy any stocks in 2011 that don’t pay at least some kind of dividend. And two of my favorite dividend stocks right now are McDonald’s (NYSE: MCD) and Invesco Mortgage Capital (NYSE: IVR), and I’ll tell you why. Since it’s impossible to know, in advance, exactly when the bloom will come off the rose, I recommend trying to collect as much of your return as you can up front. That means focusing on stocks that deliver a generous dividend here and now.
I’m especially keen right now on McDonald’s (NYSE: MCD). Some on the Street are pooh-poohing Mickey D’s in the belief that rising commodity prices will pinch the hamburger chain’s profit margins.Undoubtedly, that’s a near-term risk. But the naysayers forget that MCD has faced rising prices for bread, meat, vegetables and fuel for most of the past decade. Sooner or later, McDonald’s has always managed to pass costs through to the customer. Why should it be any different now? At Tuesday’s close, MCD is yielding 3.3%. Put another way, a dollar invested in the Golden Arches will churn out 75% more income, immediately, than a buck placed in the S&P 500 index. I’ll go with Ronald McDonald, thank you! Pay up to $77.
With the holiday season over and 2011 upon us, investors must yet again look forward and not backward when analyzing their investment options. One sector that always is at the forefront in December is retail, with shoppers flocking to the malls and shopping online at an ever-growing rate to find gifts for their friends and family. 2010 was a good year for the sector, as exemplified by the S&P Retail SPDR (NYSE:XRT), which was up 35% over last year. The holiday spending was also very strong; especially online, with Americans spending an estimated $30 billion online, a 13% increase over 2009.
While some may argue that now may not be the best time to jump into the sector (after all, January and February are traditionally terrible months for retail), there still may be some upside here. But for investors looking for more incentive, here are three retail stocks that offer potential investors the protection of dividends. American Eagle (NYSE:AEO), The Buckle (NYSE:BKE) and The Finish Line (Nasdaq:FINL).
Not everyone pays close attention to dividends, and some investors see dividends as a sign of poor growth prospects, but in the long run dividends can actually help investors earn superior total returns. In his 2005 book, "The Future for Investors: Why the Tried and the True Triumph Over the Bold and the New," renowned market commentator Professor Jeremy Siegel identified dividends as one of the key drivers of long-term equity outperformance.
Our own equity-income specialist, Josh Peters, equities strategist and editor of the monthly Morningstar DividendInvestor newsletter, couldn't agree more. His philosophy with regard to dividends is fairly straightforward: "I am just as concerned with what happens to a company's earnings and cash flows as with how large those earnings are in the first place. Pay me a dividend, and I know I'm getting something from my investment I never need to give back. Pay me a dividend, and I have the flexibility to help fund my lifestyle in retirement or reinvest my income for additional wealth compounding. Withhold dividends, and I will be only too happy to withhold my capital."
In the first stage of a bull run, non-dividend stocks generally see better results than their dividend paying counterparts. But in the latter stages of a bull market, it's dividend payers that outperform -- since 1974 they have outperformed by three percentage points during the second leg, and seven percentage points during the third, according to Ned Davis Research.
A higher dividend yield can merely be a sign of a depressed stock price. And when a stock is trading at a discount, there's often a good reason. Which is why we looked to see which high-yielding stocks were also seeing insider buying. It's fair to assume that a firm's management has a lot more access to intel than we do -- so if they're snapping up company stock, it's a pretty good sign of things to come.
This time around these investors are going to be more conservative and not chase the sexy growth stocks that capture most of the headlines. Fortunately for them there are scores of great dividend stocks available with which to build a stable portfolio. Even more fortunate for them is that dividend stocks have tended to outperform the broader market indices.
A study originally done by John Slatter in the 1980’s focused on the “dogs of the Dow” and their unusually high performance. The Dow 10 strategy as it is known states that those investing in the 10 highest yielding stocks in the Dow Jones index tend to outperform the overall market. This includes outperforming the Dow Jones index and the broader S&P 500 index. From 1928-1997, the Dow 10 strategy produced annual returns of 13.2% compared to only 10.6% from the S&P 500.
Last year was a double win for dividend fans. The S&P Dividend Aristocrats, a group of companies that have steadily boosted payments for at least 25 years, returned more than 19%, besting the broad-market 500 index by four percentage points. Also, three firms that were dropped from the Aristocrats in December were replaced immediately by three newcomers, halting what was beginning to look like a threat to the species.
Investors still have plenty of reasons to favor dividend payers in general and Aristocrats in particular. A dollar invested in the S&P 500 index in 1930 was worth $49 by the end of 2009 without dividends and $1,259 with them. Over the past five years, the Aristocrats have returned an average of 5% a year, versus 1% for the S&P 500. Unfortunately, the strategy doesn't lend itself well to mimicry by index funds, in part because the short list of stocks would make it difficult for funds to meet diversification requirements.
Cliff Remily, a portfolio manager at Thornburg Investment Management Inc., talks about the outlook for dividend-paying stocks in 2011. Remily talks with Pimm Fox on Bloomberg Television's "Street Smart."
The Dogs of the Dow is a unique investment option that involves the 10 highest-yielding dividend stocks of all the 30 Dow Jones Industrial Average components. This strategy is put into action by determining the key 10 stocks after the close of the market on the last trading day of the year, which for 2010 was today, Friday, Dec. 31, and investing an equal dollar amount into each.
This strategy has produced decent to mixed results in the past, but for 2008 and 2009 the results vs. the total return of the Dow Jones Industrial Average weren't anything to write home about. For 2010, the popular strategy produced favorable results. The Dogs handily beat the Dow Jones Industrial Average, finishing the year up 15.5% while the Dow closed the year up 11%.
How does a 6% yield on a U.S. stock sound? To careful market-watchers, it ought to sound suspiciously high. The S&P 500 index of large American firms is now 86% above its March 2009 low, and its average member's yield has shrunk to 1.6%. Fully 126 members see fit to pay nothing. Exclude them, and the average yield is still just 2.2%.
It wasn't always like that. For two centuries ended 2002, U.S. shares yielded an average of nearly 5%. However, since the middle of 1995, a string of stock bubbles, combined with a shift in management philosophy that favors now-and-then share repurchases over dependable dividends, has confined yields to less than 2.5%, save for during the three panicky quarters that ended June 2009.
Dividend stocks provide investors with steady income but it comes at the expense of big gains. Small- and mid-cap stocks are riskier but that's justifiable as economic growth accelerates. Such was the case this year, as the Russell 2000 Index has rallied more than 25% while the S&P 500 is up 12%.
Tasho and other money managers point out attractive characteristics of under-loved large-caps. Most notably, the price-to-earnings (P/E) ratios are low, which makes these stocks "cheap" on a valuation basis. In addition, corporate balance sheets are carrying $2 trillion that will likely be deployed through mergers and acquisitions, share repurchases or increased dividend payouts. While mid- and small-cap stocks offer better growth potential, they typically don't offer an outsized dividend and aren't inexpensive based on valuation.
Stocks reached highs in late December not seen in more than two years, and there's a prevailing trend of optimism heading into the new year. "This time around the stock market is telling us something important," said FGCU professor and longtime Wall Street executive David Jones. "It is signaling ... it was the first to signal ... that the economy will be improving in 2011."
High-quality stocks fared better than the average. Standard & Poor's Dividend Aristocrats, which have raised their dividends every year for 25 years or more, gained 104 percent the past decade. (Just reinvesting dividends in the S&P 500 would have increased your return to about 15 percent).
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