Dividends continue to be oh-so attractive to the income orientated
By Dian Vujovich
I figure the look-at-dividend-paying-stock story is probably beginning to sound like a broken record but until interest rates start soaring—which they will one day—stocks with handsome yields continue to make sense.
On Friday, there was continued bleak news about the yields on government bonds from Treasury.gov. One look at them and you can see the impact falling interest rates have had on our government securities: Over the past five years they’ve gone from something to nearly nothing.
For instance, the 3-month T-bill in 2006 had an average yield of 4.72 percent, according to that source, and in September 2011, that yield was a measly 0.02 percent. The 10-year note didn’t reward much more. Its yield averaged 4.79 percent in 2006 and in September was 1.98 percent.
Decide to be bold and go for Baa-rated fixed-income products and the rate has changed from an average high of 7.45 percent in 2008 to 5.27 in September 2011.
On the other hand, finding good companies yielding more than fixed-income securities and offering attractive dividends isn’t tough to do whether you’re buying stocks of U.S. firms or those located abroad. To make the case I’ve dragged out an old e-mail dated in December 2010 from BlackRock. In a story about why dividends make a difference came these two nuggets:
-Historically, 90 percent of U.S. equity returns over the last century have been delivered by dividends and dividend growth.
-Globally, since 1970 more than 80 percent of European returns have come from a combination of yield and real dividend growth. Over the past 30 years, over 90 percent of U.K, Germany and France returns have come from dividends and dividend growth. In Asia ex-Japan, the figure is 60 percent.
What you need to look for in a dividend paying stock is a company with a long history of paying dividends as well as increasing them. And before pooh-poohing this investment strategy consider that high-dividend yielding stocks tend to be cheaper than low-dividend paying ones.
Which stocks to pick? It’s probably best to start looking industry by industry. I’ve been watching telephone stocks lately and right now AT&T (T) is selling around 29 bucks a share and yielding over 6 percent. On the other side of the pond, France’s France Telecom (FTE) has a share price of 17 and change and a yield of 7.5 percent.
I don’t own either of these stocks but looking simply at that one industry has made me start looking at others at home and abroad.
If you do the same, you might be pleasantly surprised at what’s out there that’s yielding more than what the Uncle is currently offering. Then again, before investing you’ll have to ask yourself if the risk is worth the reward? Oh, if only someone knew the answer to that.
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