Near-zero interest rates have lots of savers clamoring for yield and plunging into dividend stocks.
Compared with paltry yields on a bevy of bonds, dividend stocks – especially those with the potential of capital appreciation – have become progressively more attractive to income-seeking investors.
Now's a good time to hunt for dividend stocks, as more companies increase payouts. Dividend payments grew sharply in Q4 2012, with 1,262 dividend increases reported, a 94.5% gain over the 649 increases in Q4 2011, according to S&P Dow Jones Indices.
And rich dividend payments are expected to continue among companies flush with cash since
they have curtailed expansion and investment amid growing global uncertainty.
In fact, more than 5,000 analyst estimates compiled by Bloomberg News forecast that companies in the MSCI World Index will boost payments by 3.8% to a combined $39.43 a share this year, up from a low of $29.58 in 2009.
The Benefits of Dividend Stocks
Historically, dividends have represented a significant percentage of total investment returns. Since 1930, dividends have accounted for more than 40% of total stock market returns.
And dividends can grow. Over the past 25 years, dividends paid out by S&P 500 companies have grown at a compounded rate of 3.2%.
"If you buy some quality equity, you can buy the dividend and get some dividend growth with it," Jacob de Tusch-Lec, who helps oversee $19 billion at Artemis Investment Management LLP, told Bloomberg. "With bonds, you are not protected against inflation, you are selling any upside and you are not getting any income growth. Investors have been going lower and lower down the risk curve to get yield, but at one point, some of those credit assets are no longer much safer than equities."
Dividend stocks also tend to hold up better in rocky markets. In the calamitous year of 2008, equities that paid dividends on average shed 39% on a total-return basis. Non-dividend-paying stocks lost 45.4%.
But buying dividend stocks simply based on hefty dividend yield is never prudent. That's why we put together the following 10 dividend stocks to buy now.
10 Dividend Stocks to Buy Now
- Altria Group (NYSE: MO )is a tobacco company with a strong history when it comes to dividends. Over the past 43 years, MO has raised its dividend 46 times. At $34.75, it has a dividend yield of 5.06%. Q4 2012 earnings showed year-over-year growth of 32% and the company expects higher growth for 2013.
- Philip Morris International (NYSE: PM) is the MO's parent and the company behind Marlboro cigarettes. It sports a dividend yield of 3.8%. PM is revered for its high profit margins and significant cash flow. Q4 earnings rose 11% as the company sold more cigarettes at higher prices. Its global presence makes it less vulnerable to tax hikes, bans and social stigmas that U.S. smokers face.
- Duke Energy (NYSE: DUK) is the nation's largest utility by market value and revenue. It serves 7 million customers in six states. Electricity demand rises with economic activity. So as the U.S. continues to claw its way out of recession, Duke shares, yielding 4.42%, are poised to get juiced.
- Verizon Communications Inc. (NYSE: VZ) attracts investors with its 4.65% dividend yield. The company owns 55% of the wireless business and just raised its dividend 3% in September.
- PG&E Corp. (NYSE: PCG) supplies electricity and gas to most of California. It has a 4.26% yield and is trading at the lower end of its 52-week range. Socially conscious investors will admire that PCG was just recognized as one of the "Top 50 Employers for Persons With Disabilities" by Careers & the disABLED magazine.
- AT&T Inc. (NYSE: T) yields 5.10%. Guidance for 2013 was upbeat. In a move that suggests the company sees its stock as undervalued, its board has authorized the repurchase of some 5% of outstanding shares with no expiration date.
- The Procter & Gamble Co. (NYSE: PG) has raised its dividend for 54 consecutive years. The company, yielding 2.96%, continues to introduce new household and beauty products, adding to the company's bottom line.
- Microsoft Corp. (Nasdaq: MSFT) yields 3.30% and has plenty of cash on hand to keep paying and raising its dividend. This high-flying tech company is now viewed as more stodgy than it once was but still a solid blue-chip company warranting a position in many portfolios.
- McDonald's Corp: (NYSE: MCD) is for you if you want yield, global growth and a side of profits. With a hearty 3.24% dividend yield, scores of consumers still clamoring for its cheap and quick meals, and a growing global presence, McDonald's could fatten your pockets.
- Johnson & Johnson (NYSE: JNJ )has a 3.23% dividend yield, a strong balance sheet and impressive worldwide presence in the consumer health and pharmaceutical industry. JNJ boasts 29 consecutive years of earnings increases and 50 consecutive years of dividend increases.
>You may have heard of "Dividend Aristocrats" – the S&P 500 Index companies that have increased their dividends every year for at least 25 years. Check out one of the best new Dividend Aristocrats for 2013 – and three you should avoid.
>>Or the converse (just as important): The Greatest Investment Mistake You'll Ever Make.
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