Rising Dividends
Every once in a while a simple, straight forward style for investing in the stock market comes along. Sometimes it’s new, more often than not it is a rehash of something that was popular years ago.
Back when stock trading was in its infancy, most investors focused on yield or dividends. They equated a stock to a bond. It was an investment that they held onto for years and clipped a coupon or collected a dividend every quarter or every year. Somewhere along the way this simple style of looking at investments, especially with regard to stocks, was lost.
In recent history we have seen the number of companies offering dividends reach an all time low, and we have seen the payouts attributable to those dividends also fall. What reversed this tide? The tech bubble of 2000 and the 2003 Jobs and Growth Tax Relief Reconciliation Act.
Savvy investors started looking for stable investments after the dot com blowup and they found the proverbial needle in a hay stack . . . dividends. Then a few years later the 2003 Jobs and Growth Tax Relief Reconciliation Act reduced the tax paid on dividends to 15%, further spurring interest in dividends.
Now it seems like everyone is paying a dividend. The number of companies offering a dividend is increasing, according to Standard & Poor’s. And those dividends are increasing in size. Traditionally, utilities, which were held by widows, orphans, and retired folk had the best dividends. That is a truth no more as now you find all types of industries offering dividends including energy companies, consumer goods manufacturers, and even technology companies are jumping on this band wagon.
As the individual investor, you can play this trend a few different ways. First is through mutual funds, the second is through specific ETFs, and the last way is through individual stocks. If you don’t want to take a great deal of time looking for and analyzing stocks, your best bet is a fund or ETF. Morningstar analyzes many, all with focuses on different styles – and some more managed and costly than others.
I personally prefer to pick stocks myself. I feel I have a better handle on the company, and I get to learn the good, the bad and the ugly. For dividend payers, I generally stick with S&P 500 stocks, more than 350 of which pay dividends. I also look at things like industry dynamics, company performance, historical dividends, increases in dividend payouts, and lastly, how earnings have kept up with the dividends over time. Find what you are comfortable with . . . buy a few shares . . . and kick back and earn your hard earned dividend!
Category: Dividend Stocks
