Dividends4Life: Will High Dividend Stocks Keep Outperforming?

Will High Dividend Stocks Keep Outperforming?

Posted by D4L | Thursday, August 14, 2014 | | 0 comments »

The stock market hasn’t had such a great year. The Dow Jones Industrial Average is down about 0.5 percent year to date while the S&P 500, which is perhaps a better barometer of the overall stock market, is up by 4.2 percent. Considering how well stocks performed last year this doesn’t seem so bad. After all, stocks should consolidate strong gains and no asset class is going to move up in a straight line. However, as an investor you should find ways to be tactical and to outperform the market, especially when it is weak.

One group of stocks that has been outperforming this year is high dividend paying stocks. These are stocks of companies that typically pay out a large portion of their profits in the form of dividends. They tend to underperform in a strong stock market, but they outperform and protect you from the downside in a weak market. Dividend paying stocks are outperforming for a couple of reasons. First, a stable dividend is a sign that management is confident in the company’s long-term profitability. Companies, and particularly American companies, are reluctant to raise their dividends unless management is confident in the company’s ability to pay that dividend even if earnings decline. Second, interest rates are low, and Treasury Bond yields are falling, and this makes dividends more attractive by comparison.

Source: Wall St. Cheat

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