For yield hungry investors, the best bet in the low interest rate environment has been dividend paying stocks. According to data from Markit, S&P 500 dividends are expected to increase 8.9% to $352 billion in 2014. Of course, the biggest benefit of investing in dividend-paying stocks is that you get a regular income. When yields on Treasuries are as low as they are now, dividend yield of 3.5% to 4% on a high quality company can boost the return on your portfolio. In addition, there is a possibility for capital appreciation. So not only are you getting a steady flow of income but also a chance to see potential capital appreciation.
Most high dividend paying stocks are in the defensive sectors, which makes them an excellent bet during an economic slowdown. Sectors such as utilities, healthcare and consumer staples are not significantly affected by an economic slowdown or even a recession. Dividend-paying companies are cash rich. Therefore by investing in dividend-paying stocks, you are getting exposure to high quality companies. Also, when companies return cash to shareholders in the form of dividends and buybacks, it shows that they want to create value for shareholders.
Source: InvestorPlace
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