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Investing Tips
Dividend Stocks 2013: Why 81% of S&P 500 Companies Want to Pay You
More and more S&P 500 companies are turning into dividend stocks, as yield-producing investments are becoming the hottest attraction in 2013.
Collective dividends per share for Standard & Poor's 500 companies increased roughly 16% year-over-year in 2012. Meanwhile, the number of companies paying a dividend over that period reached a new 13-year high of 405, or roughly 81% of the S&P 500, data from Factset shows.
Some 60% of these dividend stocks yield more than the 10-year Treasury, according to BlackRock.
Yield-starved investors have flocked to these equities in this ZIRP (zero interest rate policy) environment. More companies are embracing the shift and have implemented, increased or paid special dividends as a way to appease shareholders and attract new capital.
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Dividend Stocks13 Overseas Choices for Yield-Starved Investors
The markets are tapping new highs and shell-shocked investors are doing two things:
1) Coming in off the sidelines; and,
2) looking for dividend stocks in a zero-rate environment.
Unfortunately, many U.S. choices are "bid" up right now. Having run 144% off the March 2009 lows, the easy money's been made. U.S. Treasuries offer 1.77% over 10 years and the average S&P 500 stock is generating a mere 2.01%.
So look overseas.
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Investing Tips1These Dividend Stocks Can Deliver a False Sense of Security
- Tim Melvin, Contributing Writer - April 30, 2013
You might have caught the recent Barron's cover that read "Dow 16,000!"
It was hard to miss - the cover pictured a wide-grinning bull bouncing on a pogo stick.
The issue outlined why large fund managers were bullish about the next year, with 74% of those polled saying the market was headed higher.
That is the single highest reading ever in the poll, indicating wild enthusiasm among those controlling the largest pots of money.
The major reason driving stock market euphoria is the zero interest rate policy (ZIRP) of the U.S. Federal Reserve.
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Hot Stocks1How to Invest in Dividend Stocks to Build True Wealth
One of the strategies to building long-term wealth is something we frequently talk about at Money Morning: knowing how to invest in dividend stocks.
Investors need reliable income streams for their portfolios, especially in 2013.
Near-zero interest rates set in place currently by the world's biggest central banks - the U.S. Federal Reserve, the European central banks and the Bank of Japan - look likely to remain in place for the foreseeable future. Sovereign government bond yields in the developed world remain near historic lows and pay below the rate of inflation.
For investors, both institutional and individual, that means the hunt for solid dividend-paying stocks will not end any time soon.
Research has shown that, over the long-term, dividends are the key component to overall returns for investors. Studies from Wharton Finance Professor Jeremy Siegel revealed the stunning fact that reinvested dividends account for 97% of total market performance.
Data from Ned Davis Research showed that, over the past 36 years, dividend stocks have outperformed the rest of the S&P 500 by 2.5% annually. In addition, dividend stocks outpaced non-dividend paying stocks by nearly 8% annually during this period.
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Hot Stocks1How to Find the Best Dividend Stocks
It's only April, but it appears dividend payouts this year will soar past 2012's tally - meaning all investors need to know how to find the best dividend stocks or risk missing out on record-high yield.
Barron's reports that in Q1, 944 of approximately 10,000 U.S. companies boosted payouts, either by increases, extras or resumption. That was up a hefty 39.4% from 677 companies a year ago.
Dividend increases alone tallied $14.5 billion. Cash payments jumped 12%, while the forward indicated dividend rate reached an all-time high.
The following favorite dividend stocks are among those that juiced payouts in the first quarter:
- 3M Co. (NYSE: MMM) raised its dividend 8% to $0.63 per share.
- General Electric Co. (NYSE: GE) increased quarterly payment 12% to $0.19 per share.
- Pfizer Inc. (NYSE: PFE) hiked its dividend by 9% to $0.24 per share.
- The Home Depot Inc. (NYSE: HD) boosted its quarterly dividend 34% to $0.35.
With dividends on the rise, investors can't afford to pass up the security and income dividend stocks have to offer.
We asked our Money Morning income expert Martin Hutchinson for more information on how to find the best dividend stocks for your portfolios.
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Dividend StocksBeware These Three Dividend Stocks Ready to Slash Their Payout
- Money Morning Staff Reports - April 9, 2013
Investors are in love with dividend stocks this year - and there are even more juicy yields to choose from than before.
But one thing you need to be careful to avoid is a dividend stock that boasts a huge yield, but can't sustain it.
For example, look at CenturyLink Inc. (NYSE: CTL). CTL has been a favorite dividend stock for years, but slashed its dividend by 26% in February. The move caught investors off guard. Shares plunged 23% in one day - the biggest one-day decline since at least 1980 - wiping out about $6 billion in market value.
The stock still yields nearly 6%, but confidence in the company to maintain its payout has been damaged.
Positive dividend actions have far outweighed negative announcements over the past few years. In 2013's first quarter, 732 companies boosted their payouts compared with 552 in the year-earlier period.But in March, 73 U.S. companies pruned their payouts - not far off the record of 93 in December 2012.
Usually companies frame dividend cuts as necessary evils - necessary as in the cut was needed to conserve cash. Read those tea leaves and it's easy to realize that if a company needs to cut its dividend to conserve capital, it probably is not worth investing in in the first place.
The good news is investors can skirt stocks that are vulnerable to dividend reductions. We rounded up a few names that deliver tempting yields, but look like they could be on the way to cutting their payouts.
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Hot Stocks1The Best New Dividend Stocks of 2013
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."
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Hot StocksDividend Stocks Held by Warren Buffett
You know dividend stocks belong in your portfolio, and you know Warren Buffett has made a fortune with this stock picks - so why not marry those ideas when hunting for profits?
Just looking at Buffett's 13F filing for Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B) will show you which dividend stocks the famous investor is holding. The 2012 fourth-quarter filing shows that of 41 holdings, 29 are dividend stocks.
That's no surprise, given how well solid dividend-paying stocks have performed over the long haul.
Studies have shown that since 1930, around 40% of the stock market's total returns came from dividends.
One study by Ned Davis Research is particularly telling, noting that dividend-paying stocks provided returns of more than 10% a year from 1972-2005. Non-dividend-paying stocks, by contrast, posted gains of just 4.1%.
Dividend stocks have also provided a safety net during tough economic times. For example, in 2008, during the financial crisis, S&P 500 dividend stocks fell in value but still outperformed non-dividend stocks by 4.4%, according to RidgeWorth Investments.
Dividend stocks are even more attractive when you consider the payoff from reinvested dividends.
For example, if you had invested $10,000 in S&P 500 30 years ago, the investment would have a $110,740 value today. But if you reinvested dividends, that $10,000 would have grown to $255,600, according to USA Today.
Dividend stocks are also a good bet at a time when the U.S. Federal Reserve seems likely to continue its easy-money policy for the foreseeable future.
Historically, during times that the Fed has tightened monetary policy - meaning there were at least three consecutive interest rate increases and no intervening easing cycles - dividend-paying stocks increased 2.2% vs. 1.8% for non-paying ones, according to Ned Davis Research.
Whenthe Fed has implemented easing monetary policy - at least two consecutive interest rate cuts within 12 months - then dividend-paying stocks yielded 10.0% vs. -2.5% for non-dividend paying stocks. In the remaining times - "neutral" - dividend-paying stocks yielded 12.3% vs. 6.2% for non-dividend paying stocks.
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Hot Stocks1Dividend Stocks to Buy Now
- By Money Morning Staff Reports - March 15, 2013
Yield-seeking investors know that holding the right dividend stocks means they get paid even if the market pulls back.
That's an enticing idea now that the Dow Jones Industrial Average is at a record high.
That's also why Money Morning Global Investing Strategist and editor of the Permanent Wealth Investor service Martin Hutchinson warns that holding only non-dividend payers could hurt investors.
"I find stocks that don't pay dividends rather alarming because there's no way of getting any return from them at all," explained Hutchinson.
His favorite dividend stocks are "heirloom stocks," a select group of 82 stocks listed on the NYSE or Nasdaq with a reliable dividend-paying history.
In the following video Hutchinson explains how to spot heirloom stocks and why they should be an important base of any portfolio. He also shares one of his favorite "heirloom" dividend stocks to buy now.
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IncomeThese Dividend Stocks Will Continue to Shine in 2013
It's been a great year for anyone interested in dividend stocks - and it looks like it'll get even better.
Corporations in the S&P 500 are expected to pay at least $300 billion in dividends in 2013, up from last year's $282 billion, according to S&P Dow Jones Indices.
And some of the dividend hikes represent a healthy payout boost.
For example, one of the latest in a string of companies to boost dividends, QUALCOMM Inc. (Nasdaq: QCOM), recently announced a 40% increase in its dividend.
Besides QUALCOMM, Hess Corp. (NYSE: HES) hiked its dividend 150%, HollyFrontier Corp. (NYSE: HFC) 50%, The Home Depot Inc. (NYSE: HD) 34%, The TJX Cos. Inc. (NYSE: TJX) 26% and Applied Materials Inc. (Nasdaq: AMAT) 11%, to name just a handful.
The good news: If you haven't yet joined the payout party, you can expect even more dividend increases in the weeks ahead.
