Dividend paying stocks have been emphasized in significant scale as the low interest rate environment rolls from one year to the next. The thesis and historical evidence does support holding dividend paying stocks over non-payers. However, I try to highlight to investors that there is more than just the dividend yield to look at when evaluating potential buys, e.g. the growth rate in dividends is more meaningful than the actual yield. I highlighted a couple months ago the potential for underperformance among dividend paying stocks with high exposure to Europe.
Stick with dividends, they do work. But dividend paying stocks is a big universe and in it lies great opportunities as well as some hidden pitfalls. Dividend stocks with huge gains through the first three quarters may be vulnerable for the next couple of months. This includes the home building group and names such as Home Depot and Whirlpool. Gold stocks have several tailwinds that point to outperformance in the fourth quarter despite only so-so results since QE3 was officially unveiled. Be patient with gold. It remains in a secular bull and QE will be with us for longer than many think.
Source: Motley Fool
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