Dividend Stocks are Out of Favor and Therefore Should Be Considered

Back in May, everything went horribly wrong. Ben Bernanke dared to mutter the word that shouldn’t be said (“tapering”) and the magic spell was broken. Anything whose dividend had enhanced its value was out of favor. All four main classes of dividend payers, telecom stocks, REITs, utilities and established industrial companies were hit. The first three sectors were hit particularly hard. Telecom, real estate and utility companies tend to carry a lot of debt (be “highly leveraged”) so not only were their dividends less attractive, the cost of debt service also increased.

If you believe, as I do, that the market is prone to over react and that many of the effects of tapering are now priced in, it is possible that buying solid but hard hit stocks in these sectors could be a good idea. If income is important from your investments, or will be soon, these may well be a good starting point for re-investment in high yielding stock. If nothing else, the reduced focus out there on this kind of investment suggests to me that it is. I guess I will forever have a contrarian streak!

Source: NASDAQ

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