Dividends4Life: Your Dividends Are Dead!

Your Dividends Are Dead!

Posted by D4L | Sunday, December 05, 2010 | | 0 comments »

Are dividend stocks the new Beanie Babies? On the surface, you'd assume that stocks paying out cash have little in common with children's plush toys, but some of my colleagues would disagree. They'd call dividend investing a fad, just like the Beanie Babies of yesteryear. Could that possibly be true? While investor interest in dividends is surely piqued, blue-chip companies like Procter & Gamble, Intel, and Microsoft continue boosting dividends at outsized levels, and come with pretty cheap price tags to boot.

So no, I don't think dividend investing is a fad. The real fad is a tightly clustered group of stocks hovering near the top of the dividend yield list. If you were chasing the best yields back in 2005, your dividends are now dead. That's because unique events often conspire to create situations where one beaten-down industry offers yields that blow away those found anywhere else. Take the telecoms seen above; they're all focused on the declining landline market. That provides these companies with stable cash flows to pay out dividends today, but also gives them little growth. If these companies see faster customer defections than expected in coming years, investors can expect not only a slumping share price, but a sagging dividend payout as well.

Source: Motley Fool

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