Dividends ought to be appealing to investors even in 2010
By Dian Vujovich
Last year, 2009, turned out to be the worst year for investors seeking income from dividend-paying stocks since, get this
1955. That plop in income translated to a 21 percent decline in dividends per share for the stocks in the S&P 500. Even so, a dividend is a dividend. And even though some have projected that dividend yields aren’t expected to return to the highs reached in 2008 until 2012-13, income is income.
Eric Lansky is a friend and president of the USAMutuals, a small fund family based in Texas. One of the funds in the family that you may be familiar with is The Vice Fund (VICEX). Since I’m like most and not without a vice or two, the concept of the fund is intriguing although its performance could use a little “shaken not stirred” jolt.
Lansky’s fund family just released a white paper titled ” Attributes of Dividend Paying Companies”. The premise behind the report is that the companies The Vice Fund invests in— namely those in the alcohol, tobacco, gaming and defense industries– have the potential to generate above average dividends and cash flow and therefore have total returns that could outperform the returns of the market averages.
That could happen, right? And given that there have been times when 40 percent of a stock’s total return over the long haul has historically come from dividends, investing in well-established, solid, dividend-paying stocks is a strategy even widows and orphans with or without vices could employ.
That said, be mindful that companies that do pay dividends don’t have to keep paying them year-after-year, and, a company may choose to reduce or eliminate dividends payouts at any time.
Back to the” Attributes of Dividend Paying Companies” report.
Below are a few highlights from the paper that point out some interesting facts and history targeted at dividends and their relationship to total return For instance:
• Stock yields were greater than bond yields from 1926 until 1958. Afterwards, bond yields were higher, and this relationship continued until November 2008, when the yield on the S&P 500 surpassed the yield to maturity of the 10-year Treasury.
• The average dividend payout ratio was around 70% from around 1870 through the mid-1940s before moving closer to 50% the second half of the century, shrinking to near 30% in 2006.
• Dividend yields hit an all time low in 2000 of 1 percent.
• Dividends accounted for more than 40% of the total returns from stocks from 1926 to 1990, but that contribution fell to 17% from 1991 to 2006 as rising valuations during the bull market skewed returns toward capital gains.
The ” Attributes of Dividend Paying Companies” is worth a read and you’ll find it in its entirely at http://www.allaboutfunds.com as of June 7, 2010. Look for it in the center column of the home page.
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