Dividend stocks update: Although the markets finally closed in positive territory late last week, overall they're off to a rocky start this year.
On Feb. 3 the Dow Jones Industrial Average fell 7.5% below its all-time high, and on Feb. 5 the Standard & Poor's 500 Index slumped 6.1% below its record close.
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From the mid-1980s through 2000, stocks like Microsoft Corp. (Nasdaq: MSFT) and Cisco Systems Inc. (Nasdaq: CSCO) were growth powerhouses.
In fact, if you had invested $10,000 in Microsoft in 1986 and the same amount in Cisco in 1990, you could have turned your $20,000 into about $8 million today.
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.
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Endless stimulus is ultimately self-defeating. But growth, especially when driven by trillions of dollars in economic need, is not. And this growth will not stop.
That's why it makes sense to keep your money in motion - albeit very deliberately and very cautiously - with choices that offer cold, hard cash as compensation for the risk you take in owning them.
Check out this trio of income titans here...
Not all dividend stocks are created equal – and the sentiment forming in the markets show it’s time to dump these that are no longer cutting it. Read more...
There's zero interest on savings, volatile markets and no money in bonds. You HAVE to know how to invest in dividend stocks. Here's how. Read more...
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.
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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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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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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.
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As Money Morning Executive Editor Steve Christ told us this week, finding solid dividend stocks in different sectors is a key to finding financial freedom, thanks to compounding.
"This compounding effect arises when your dividend yield is added to the principal. From that moment on, the interest begins to earn interest on itself," explained Christ. "Over the long haul, that process can add up to a small fortune - even with very modest investments. All it takes is time."
How do you find theses reliable dividend payers?
For starters, consider dividend stocks that have a history of raising their payout. Dividend.com recently compiled a list of stocks that have hiked their dividends for at least 25 years.
To take it a step further, we compared that list to Standard & Poor's "Dividend Aristocrats" - large-cap, blue-chip companies that have increased dividends for at least 20 consecutive years.
Some of the "Aristocrats" have hiked their payouts for much longer than that, like these seven, which have done so for at least 50 years:
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Here's how to get rich in stocks: Buy elite businesses at a good price and let the dividends compound over the years. That's the safe, steady road to building true wealth.
The key is in selecting the right stocks to buy.
However, most investors starved for solid dividend-payers often overlook one of the safest and most lucrative sectors - small cap dividend stocks.
Instead they focus on large cap businesses like Wal-Mart Stores Inc. (NYSE: WMT) or McDonald's Corp. (NYSE: MCD).
But therein lies the problem--everybody knows they are great companies. That alone can drive their share prices to dizzying heights.
So investors who limit their choices to the big blue chips can end up paying too much-while missing out on another category of stocks that could make them even more money.
In short, they miss the quality small-cap dividend-payers. Here's why that is a big mistake for most investors.
Small-cap stocks can be an individual investor's best friend.
In the period between 1927 and 2009, small-cap value stocks returned 14.9% per year.
Meanwhile, returns on large-cap value stocks averaged roughly 3% less per year.
So why do these small frys outperform their larger cousins?
First of all, their small size makes them fly under the radar of many institutional investors.
What's more, mutual funds and pension funds have billions to invest, making it nearly impossible to buy and sell small stocks without having a huge influence on the price. As a result, a fund manager may find himself chasing a stock higher as he tries to take a meaningful position simply because he's the only big buyer.
Second, because the big fish tend to attract the big bucks, small caps are often ignored by Wall Street analysts. Most analysts simply aren't about to spend precious hours researching a company that no one follows.
So "in-the-know investors" buying small cap dividend payers face a lot less competition and can pick up shares at a good price.
Plus, many of these small cap dividend machines actually have a lot in common with their big brethren.
Like many large-cap, dividend-paying stocks, these companies generate tons of cash flow, have great brand names and wide competitive moats in their respective industries.
More importantly, they also have a history of dividend growth. They just happen to be much smaller than giants like Coke (NYSE: KO)and Procter & Gamble (NYSE: PG).
The bottom line: Investors who are willing to accept a slightly higher degree of risk should consider investing in small-cap value stocks that pay dividends.
With that in mind, here are three small caps that are members of the Russell Global Small Cap Dividend Achievers Index. To qualify they must have raised their dividends annually for more than 10 years and meet minimum cash volumes.
In short, these are companies that throw off plenty of cash and safe dividends.
They include:
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Following a banner year for dividend stocks in 2012, 2013 is delivering more of the same as an increasing number of companies are either initiating cash dividends or boosting existing payouts.
From Feb. 1 to Feb. 8, at least 15 companies increased their cash dividends. That list included familiar names such as Dow component 3M Co. (NYSE: MMM), Allstate Corp. (NYSE: ALL) and Archer Daniels Midland Co. (NYSE: ADM), a new addition to Warren Buffett's Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B) equity portfolio.
It was more of the same when 14 companies raised their payouts in the week ending Feb. 15. That list includes Comcast Corp. (Nasdaq: CMCSA), PepsiCo Inc. (NYSE: PEP) and United Parcel Service Inc. (NYSE: UPS).
With all these familiar blue chips delivering ever-increasing dividends, it is not surprising that some stocks of the same caliber go overlooked by investors. Here are a couple of those unheralded names investors on the hunt for dividend stocks should become more familiar with.
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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.
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Weary investors scouring the landscape to find decent dividend stocks to buy should take a hard look at the latest list of Dividend Aristocrats.
The S&P 500 Dividend Aristocrat Index measures the performance of companies in the S&P 500 Index with amarket value of at least $ 3 billion that have increased dividends for at least 25 consecutive years.
In 2013, only 54 companies, approximately 11% of companies in the S&P 500, made the cut.
Actually, it's no surprise this group of dividend stocks is tiny.
Think about it.
These companies have raised dividends for the last 25 years - a period of time that included the Great Recession, numerous oil price shocks, at least two major market meltdowns and wars in Iraq and Afghanistan.
If they can steadily raise their dividends in the face of that kind of adversity, you can be pretty confident they're going to be around for awhile.
They're the kind of companies that consistently deliver the goods, having outperformed the rest of the S&P 500 on a regular basis. The Aristocrats returned 4.59% annually over the last five years, while the group as a whole produced a negative 0.25% return for the period.
These are businesses with strong balance sheets, healthy earnings and cash flow generation that can help you protect your portfolio - regardless of the market's direction.
But not every Aristocrat is worthy of your hard earned dollars.
Some drop by the wayside. Others are increasing their dividend by draining capital from their business.
Here's what to look for when choosing the best dividend stocks to buy.
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