Dividend paying stocks are in vogue again, even as long-term government bond yields have surged dramatically this year. Traders seem to be craving quality blue chips that offer steady (and often growing) dividends. These can be a more exciting investment than stodgy Treasuries.
Quarterly or annual dividend payments provide good income streams for investors who need cash in the short-term. And for those playing the longer game, dividends can be reinvested to buy even more shares in those same companies.
It makes sense that dividend stocks are doing well in these tumultuous economic times. When a company pays a dividend — and continues to steadily increase it — that’s a sign of financial stability.
Growth companies pay dividends, too
Graff said investors looking tor dividend stocks need to focus not just on their yields, however. Because the dividend yield is the annual payout divided by the share price, higher yielding stocks often are so-called value traps, companies with a plunging stock price.
Graff said he prefers companies with decent, although not sky-high, yields that are also steadily increasing their dividends. Investors can find businesses that are able to generate sales and earnings growth at a healthy clip.
UnitedHealth’s dividend yields 1.2%, NortonLifeLock’s yield is 2.2% and American Electric Power has a yield of 3%. So the yields are still low enough — less than the current 3.4% rate for a 10-year Treasury bond — that there is room to keep increasing the dividends even as the companies invest in their businesses to keep profits rising.
“These are not just companies with nothing better to do with their cash,” Graff said.
So it’s no longer the case that dividends are just for conservative investors or retirees on a pension or other fixed income.
Quoted from Various Sources
Published for: Mr Blow Up