Dividends Matter
Wow! Did you see the news yesterday? President Obama continues to be a rule breaker… just yesterday he broke a long standing (unwritten) rule of the presidency. Never-ever comment directly on the stock market. It’s a simple rule that’s meant to protect our nation’s leader form looking like an idiot.
President Obama threw caution to the wind and mentioned stocks were undervalued.
He didn’t just say “Buy America” like every other president before him. Nope. He went out on a limb and said at these earnings levels the market is a great opportunity for a long term investor. Now, I’m paraphrasing here, but the impact was unmistakable.
As I write this the market is moving higher on the euphoria he’s created.
He doesn’t realize it but he’s created a big problem… but first, let’s ask a simple question. Is he right?
Is now the time to be buying stocks?
I know plenty of hedge fund managers laughing at that idea. These investors specialize in shorting the market. They see the market only heading lower. You’ve got to admit, they’ve made a lot of money in the last year or two. They’d argue now is the worst time ever to be investing. Maybe they’re right.
A few of the more famous investors might disagree however.
Just ask investing giant Warren Buffett. Knowing Buffett, he’d probably spout off some witty comment about being a hungry mosquito in a nudist camp. We know he’s been buying. He’s been investing big sums of money in a number of big businesses and authored an op-ed piece about buying today’s market.
Who’s right? Only time will tell.
But, I’ll tell you this, some of the largest companies in our nation are trading at historic lows. These prices haven’t been seen in decades. Combine that with the knowledge the US is the strongest economy in the world, and I think you’ve got a pretty good bet.
It’s like being able to bet on the lead horse with half the race already run!
Look, if you have 10 or 20 years… buying here might not be a bad idea. I guess that means I agree with President Obama on that one…
But we have a big problem… Obama didn’t tell us what to buy.
Think about it. If now is the time to buy, the big question is what should we buy? Something tells me we’re not going to get President Obama to give us an answer to that one any time soon.
But I have an answer.
Don’t I always?
So, here’s my thinking. If we’re thinking now’s the time to buy (and why not). And we’re prepared to hold for the long term (10 or more years). Then we need to look back at the markets and see what’s worked.
One comment I remember reading years ago has always stuck in the back of my head. It’s how dividends are a major contributor to big returns in the market. Basically, the dividends you earn over the life of an investment contribute substantially to your returns.
But don’t take my word for it…
Standard & Poor’s research group had this to say:
“Since 1926 dividends have contributed nearly a third of total equity return, while capital gains have contributed two-thirds. Therefore, sustainable dividend income and capital appreciation potential are both important to total return expectation.”
That’s a fancy way of saying: “Dividends Matter!”
So we need to focus on stocks offering nice dividend payouts. But here’s a risk. Dividends might get cut… it’s happening more and more every day. So what’s the solution? Let’s focus on companies raising their dividends now.
There won’t be many, but if management has the confidence to raise their dividends, they’re probably pretty certain the future is looking bright. Here’s a few name brand companies who recently increased their dividend payouts.
Coke’s (KO) dividend jumped 8%,
Colgate’s (CL) dividend is up about 10%,
Abbott Labs (ABT) did a smidge better, they bumped their dividend to 11%, and
FPL Group (FPL) increased their dividend by 6%.
These are all well known firms. Their confidence in raising dividends shows us the path to good investments. You might want to take a look at them for your own portfolio…
Category: Dividend Stocks
