Dividend-paying stocks make up the core of many income-focused investors' stock portfolios. Typically, companies that pay dividends do so to inspire confidence in investors and demonstrate that they have a sustainable business with strong cash flows. What better way to woo investors than by cutting them a periodic check for investing in the stock of their company? For investors, dividends help cushion the blow of steep market downturns, and add to their total return during good times. Today, dividend yields of U.S. stocks are low compared with historical standards, but experts say there are reasons to be optimistic.
"Bottom line: Dividends are doing great," says Howard Silverblatt, senior index analyst at Standard & Poor's. But his enthusiasm comes with a caveat: "as long as you don't go back too far," he says. So far this year through the end of February, 84 companies in the S&P 500 stock index have increased their dividends, and none have decreased them, according to S&P. Wal-Mart made headlines last week when it announced a 21 percent dividend increase, and seven companies, including Kohl's and WellPoint, have initiated dividend payments—meaning they're offering them for the first time or reinstating them. Compare that with 13 new dividend payers during all of 2010. The bad news: At this rate, it will be 2013 before dividend payments reach 2008 levels, says Silverblatt. (Total payouts are still down 18.5 percent from 2008.)
Source: U.S. News 7 World Report
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