You’ve probably heard the argument before: Dividend stocks are living on borrowed time. As soon as interest rates rise, investors will pull their money out of dividend-paying companies and plow it into bonds, causing stock prices to plunge. Kinda scary, isn’t it? Well, relax. It’s not going to happen. Here’s why.
Dividends will keep rising. Cash-rich U.S. companies boosted dividends by a net $24.2-billion (U.S.) in the first quarter, up from a net increase of $19-billion in the first quarter of 2011. The number of companies hiking dividends rose to 677, up from 510. Yet, the average payout ratio – dividends as a percentage of profits – is at a historic low of about 30 per cent. That’s less than the long-term average payout ratio of about 52 per cent, indicating that dividends have plenty of room to rise.
Source: Globe and Mail
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