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Why A Lot More Investors Are Getting Dividend-paying Shares, Not Necessarily Bonds
Individuals are buying for dividend-paying stocks in an unusual industry environment. Most do not want to put money in the financial institution with the record-low interest rates. Dividends are being paid out by corporations with extra cash. This is even happening throughout the economic recovery that doesn’t look so bright. A 15 year high has been reached by businesses. This is for the average bond yield the businesses pay for dividends. The dividend tax rate is low. Stocks that are dividend-paying can also give a nice hedge against inflation. They also help keep a revenue stream going. Of course, dividend-paying stocks won’t be as important if Bush tax cuts really expire.
Popular dividend-paying stocks
Dividend-paying stocks and shares are super popular right now. That is for numerous reasons. In the past, bond yields were preferred. That is because stock dividend payouts weren’t as good. Within the last 15 years, there has been a change, explains Bloomberg. United States stocks are more profitable than bonds now. In the second quarter alone, corporations raised payouts 6.8 percent. Because worker productivity has gone up, corporations have changed. Now they’re sitting on lots of cash. Record low interest rates made it so dividend-paying shares might be cheap and have a 2010 projected growth of 36 percent. A 10 percent drop within the S and P 500 since April also pushed up dividend yields relative to share price. Numerous individuals are just excited to be able to purchase stock that will pay them back much more than bonds.
Why there is so much interest in dividend paying stocks
Linda Stern at ABC News explains that stock dividends are great to hedge against inflation which is the reason why investors want them. Many think about how dividend checks could be cashed anytime. This helps during a rough economy where bond and stocks and shares are losing value. There’s one more perk to dividends. Dividends follow inflation usually. There is still some risk. These come with dividend-paying stocks. Stern uses the example of Financial institution of The United States and Citicorp. They were two of the businesses who had dividend disappear through the credit crunch. Plus, if the Bush tax cuts are allowed to expire on Dec. 31, dividends could again be taxed like ordinary income — at rates as high as 39.6 percent. There is a 15 percent tax on capital gains. Dividends share that rate at present.
Getting the dividend-paying stock you need
Long term investments might suggest looking at dividend-paying stocks. Matt Theal at MarketWatch suggests this. With dividends, try to find the companies to invest in. These should be ones that have higher dividend returns than any credit market returns. Currently 68 companies within the S and P 500 yield a lot more than 3.78 percent, the average rate within the credit markets since 1995. Theal used a stock-screener to search for S and P 500 companies paying a dividends provide of 3.78 percent that sell under 12 times earnings. There were 25 different options that showed up. Among these were Verizon Communications, Reynolds American Inc., Excelon Corp. and Britol-Meyers.
Bloomberg
bloomberg.com/news/2010-09-06/dividends-top-bond-yields-by-most-in-15-years-as-u-s-cash-pile-increases.html
ABC News
abcnews.go.com/Business/wireStory?id=11584528
Marketwatch
marketwatch.com/story/high-dividend-stocks-to-consider-2010-09-08?reflink=MW_news_stmp
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