Anxiety over the European debt crisis and distrust in the markets drove volatility in global stock markets to dizzying heights in 2011. The intense level of chaos, and record low bond yields, sent investors scrambling for stocks that deliver steady returns in the form of dividends.
Dividend stocks have long been regarded as "widow-and-orphan" stocks because they provide steady payouts and tend to fall less than others when times are tough. And when stock prices fall, dividend yields actually rise because they reflect a percentage of a stock's price.
In fact, investors seeking shelter from market volatility and economic cycles flocked to dividend stocks in 2011. And most held up much better than the Standard & Poor's 500 Index.
The top 100 highest-yielding stocks in the S&P 500 last year were up an average of 3.7%, before dividends, The Wall Street Journal reported. By comparison, the 100 lowest-yielding stocks were down 10% on average.
Meanwhile, some investors tapped into dividend yields of more than 4% -- more than double the feeble yields of 10-year Treasuries -- on the stocks of utilities, manufacturers, and telecom companies.
"The problem with going for capital growth is that you very often don't get it, and then you've got nothing - the investment just sits there," said Money Morning Global Investing Strategist and Editor of the Permanent Wealth Investor Martin Hutchinson. "Dividends are easy - you can drop them on your foot, as it were. All you have to do is figure out which companies are run by sharpies - and are paying dividends out of capital - and which companies have genuinely solid business models that aren't going away."
Still, buying dividend stocks can be tricky. Individual stocks are inherently risky because they are confined to one sector of the economy. As such, they tend to rise and fall along with the rest of their industry peers.
Many investors are solving that problem by turning to dividend exchange-traded funds (ETFs).
ETFs allow investors to capture income from a cross section of companies, without risking all of their capital on one sector. And because ETFs track broad categories of stocks rather than relying on active managers to pick securities, they provide some safeguards against loading up on the riskiest companies.
That said, here are four dividend stocks worthy of a look right now:
SDY includes companies of all sizes, and its focus on yield means plenty of small-cap companies can make the cut. Investors can go to bed at night knowing that any company that managed to raise its dividend in both 2008 and 2009 provides safety. The fund has more than $8 billion in assets, yields 3.2% and provided total returns of 9.8% in 2011.
The fund has $7.9 billion in assets, yields 2.1% and returned a total of 10.7% in 2011.
The fund has $269 million in assets, yields 3.8% and returned 2.76% in 2011.
These selections should be enough to get you started. But if you're really serious about income, and you want to know what companies are behind the juiciest dividends, then you can sign up for Martin Hutchinson's Permanent Wealth Investor by clicking here. It's the only way to ensure you're getting the highest-yielding stocks available - not just paper tigers either, but genuine "alpha-bulldogs."
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