The Best New Dividend Stocks of 2013

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Thanks to this year's booming market for initial public offerings (IPOs), there are a handful of new dividend stocks for yield-starved investors.

In the first quarter of 2013, 45% of all new offerings paid a dividend. That compares to just 16% in Q1 of 2012, according to data from Renaissance Capital.

This is the most dividend stocks to debut in a quarter since Q2 of 2008, when 69% of IPOs paid a dividend.

The trend is in direct response to investors' hunt for yield, and comes at a time when dividend stocks should be part of everyone's portfolio.

As Money Morning Global Investing Strategist Martin Hutchinson has explained, "The truly rich don't spend their days watching the financial news and trading stocks. They're too smart for that. They know that investing in steady income-producing dividend stocks is just as rewarding over the long haul."

Why Dividend Stocks Matter to Your Portfolio

Thanks to the near-zero interest rate environment that has been around for nearly five years and isn't going anywhere – compliments of the U.S. Federal Reserve – yield-starved investors have had limited options.

Investors clamoring for yield used to flock to bonds and CDs. But with the best bond yields currently coming from high-risk junk bonds, and CD rates puny at best, dividend stocks have become a favored sector.

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.

Those returns get even better when payout ratios increase over time. Over the last 25 years, dividends shelled out by S&P 500 companies have increased at a compounded rate of 3.2%, according to data from Kiplinger.

Another bonus of dividend stocks: They tend to perform better than non-dividend payers.

Investment firm BlackRock notes that over a 75-year period ending 12/31/11, the S&P 500 averaged 10.01% per year. Dividend stocks in the S&P 500 returned 12.28% while non-dividend payers returned 8.96%.

Regular cash distributions send a clear message about a company's prospects, performance and fundamentals. They're a sign that management cares about valuing the shareholder, instead of using excess cash for executive compensation.

Furthermore, dividends tend to be more predictable than stock prices. As a rule, dividend stocks are less volatile than non-payers.

The Best New Dividend Stocks of 2013

A Standout Among MLPs: Among the 14 dividend paying IPOs of Q1 2013, 10 were master limited partnerships (MLPs) and real estate investment trust (REITs). Both are a special class of equities coveted for their handsome payouts and yield.

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  1. Jeff Pluim | April 3, 2013

    With TRUE inflation running between 8% and 10%, the measly 3.8% dividends don't amount to much. It is a good thing that the stocks are appreciating in value to help make up some of the loss to inflation.

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