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INCLINE VILLAGE, Nev. — In previous articles I have discussed how investors can receive income from preferred stocks and bonds. In today's low interest rate environment, investors can also find attractive yields from dividend-paying stocks.
By just about any measure, the yields on equities are attractive relative to bond rates. The dividend yield on the S&P 500 is about the same as the yield on a 10-year Treasury bond (2.2%) with 89 companies yielding more than T-bonds. In fact nearly 50 of the S&P 500 stocks yield 4 percent or more.
Barring economic collapse, these dividends are safe. That's because corporate cash levels are high and profits are increasing. In fact, the ratio of dividends to corporate earnings is the lowest on record. Expect dividend payments to increase.
Inflation isn't much of a worry now, but eventually the U.S. may inflate its way out its economic and budget problems. Dividend-paying stocks offer more protection against inflation than bonds, because prices would rise.
Some of our favorite dividend paying stocks are AT&T (5.9% yield), Verizon (5.4% yield), Pfizer (4.3% yield), and Spectra Energy (3.9% yield). There are exchange-traded funds (ETFs) that specialize in dividend stocks too. The SPDR S&P Dividend ETF (SDY) holds the 50 highest-yielding stocks in the S&P 1500 index that have also steadily increased dividends over the last 25 years. This ETF yields 3.4 percent. Another good choice is Vanguard Dividend Appreciation (VIG), which holds stocks with a strong record of increasing dividends. VIG yields 2.3 percent.
Owning dividend paying stocks can be an important portfolio component for investors seeking income, especially in today's market environment. Since stock indexes are about unchanged for 12 years, portfolio appreciation for buy-and-hold investors has mostly come from dividends. Keep in mind that dividend paying equities are only one component of a portfolio invested for income, however. A portfolio should also include fixed-income instruments, preferred stocks and utilities.
— David Vomund is an Incline Village-based fee-only Registered Investment Adviser. Information is found at www.ETFportfolios.net or by calling 775-832-8555. Clients hold the position mentioned in this article. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.
By just about any measure, the yields on equities are attractive relative to bond rates. The dividend yield on the S&P 500 is about the same as the yield on a 10-year Treasury bond (2.2%) with 89 companies yielding more than T-bonds. In fact nearly 50 of the S&P 500 stocks yield 4 percent or more.
Barring economic collapse, these dividends are safe. That's because corporate cash levels are high and profits are increasing. In fact, the ratio of dividends to corporate earnings is the lowest on record. Expect dividend payments to increase.
Inflation isn't much of a worry now, but eventually the U.S. may inflate its way out its economic and budget problems. Dividend-paying stocks offer more protection against inflation than bonds, because prices would rise.
Some of our favorite dividend paying stocks are AT&T (5.9% yield), Verizon (5.4% yield), Pfizer (4.3% yield), and Spectra Energy (3.9% yield). There are exchange-traded funds (ETFs) that specialize in dividend stocks too. The SPDR S&P Dividend ETF (SDY) holds the 50 highest-yielding stocks in the S&P 1500 index that have also steadily increased dividends over the last 25 years. This ETF yields 3.4 percent. Another good choice is Vanguard Dividend Appreciation (VIG), which holds stocks with a strong record of increasing dividends. VIG yields 2.3 percent.
Owning dividend paying stocks can be an important portfolio component for investors seeking income, especially in today's market environment. Since stock indexes are about unchanged for 12 years, portfolio appreciation for buy-and-hold investors has mostly come from dividends. Keep in mind that dividend paying equities are only one component of a portfolio invested for income, however. A portfolio should also include fixed-income instruments, preferred stocks and utilities.
— David Vomund is an Incline Village-based fee-only Registered Investment Adviser. Information is found at www.ETFportfolios.net or by calling 775-832-8555. Clients hold the position mentioned in this article. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.
