"Earned Any Dividends Lately?"

Dividend Stocks Become the Heroes


Urging investors toward dividend-paying shares has been an easy sell. This year, the 100 stocks in the Standard & Poor's 500-stock index with the highest dividend yields are up an average of 3.7% before dividend payouts, according to Birinyi Associates. The 100 lowest-yielding stocks are down an average of 10%.


Investors hungry for stock-price gains have been barreling into dividend-paying shares, long regarded as "widow-and-orphan stocks" because of their steady but stodgy performance. Some analysts say such stocks are the most "crowded" trade around these days. Investors have been dazzled by dividend yields of more than 4% on many utilities, household-goods manufacturers and telecommunications companies. That is twice as much as recent paltry yields on 10-year Treasurys.

Dividend-stock fans say the unusually strong performance is likely to last as long as volatility driven by Europe's debt crisis and the global economic fits and starts continues to grip financial markets. Stocks that pay steady dividends tend to fall less than others when times are tough.

Comment: We only buy stocks where we know something about the company. We ask ourselves these questions:

  • What does this company do? What do they produce (product or service)?
  • Do we have any experience with the company?
  • Who are their competitors?
  • Are they currently paying a dividend? Are they able to afford that dividend (the payout ratio)? Are they likely to continue to earn enough to pay a dividend?

Many of the stocks we buy are not exactly exciting: We have stock in Kimberly-Clark. We buy their products: Kleenex and Scott's. We reason that their products are superior (who buys check tissues?!) And it pays a dividend. Other examples are McDonalds, P&G, Heinz. Companies that we have a bad opinion of .... we don't buy (example ... airlines). Every stock except one in our portfolio pays a dividend. The average dividend rate is currently 3.4%

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