Dividend-paying stocks are in the spotlight right now--in fact, Morningstar's resident dividend guru, Josh Peters, worries they could be too popular. And while some investors have gravitated to dividend-paying stocks for their relatively robust yields when compared with high-quality bonds, the two asset classes are not interchangeable.
It's easy to see why dividend payers are getting attention. Stocks of some high-quality companies such as Johnson & Johnson (JNJ) currently feature higher yields than their bond counterparts, an unusual phenomenon that speaks to incredible shrinking fixed-income yields. And though their risks are greater, dividend-paying stocks also offer more capital-appreciation potential than most bonds do. Given that the economy appears to be stabilizing and interest rates could rise in the years ahead, many investors see dividend-paying stocks as offering an attractive mix of current income, stability, and growth potential.
Source: Morningstar
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