The Quest for Yield

Dividend-Paying Stocks Draw Investors: Utilities and REITs Gain More Than Major Indexes as Search for Yield Continues


Large investors are snapping up stocks that provide steady income, an endorsement of companies' health but also a sign of apprehension over the U.S. market's five-year bull run. Many stocks that pay out dividends and other types of distributions, such as utilities and real-estate investment trusts, have risen more than major indexes since the start of the year. The rally in these shares has helped power the Dow Jones Industrial Average, which is composed of 30 companies that all pay dividends, to new records. On Thursday, the Dow breached 17000 for the first time ever following a stronger-than-expected reading on the U.S. jobs market. The Dow eased 44.05 points, or 0.3%, to 17024.21 on Monday after being closed Friday for the Independence Day holiday. Year to date through Thursday, the Dow has returned 4.2% to investors when dividends are included in the calculation. The figure for the broader S&P 500 is 8.5%. The 10-year U.S. Treasury note has returned 4.112%, according to Barclays. Investors say they are confident that corporate balance sheets, which took a hit during the financial crisis, are robust enough to sustain dividends in coming months. But they are uncertain whether the outlook for growth is strong enough to support another broad bump up in share prices. At the same time, bond yields have remained stubbornly low and the Federal Reserve has signaled that it is in no rush to raise interest rates, boosting the lure of stocks that offer payouts.

The DJIA sports a dividend yield of 2.29%. That compares with 1.98% for the S&P 500 and a yield of 2.617% on the 10-year Treasury note. Stocks are yielding more now than they did in past market peaks. The S&P 500's dividend yield was 1.83% in October 2007 and 1.05% amid the tech-stock bubble in August 2000, according to S&P Dow Jones Indices. Companies, flush from cash hoarded in the years after the financial crisis, have been well-positioned to reward shareholders in the form of dividends. Last year, S&P 500 companies paid a record $34.99 a share in dividends, up 12% from 2012 and 32% from 2011, according to S&P Dow Jones Indices. In the 12 months that ended June 30, that figure had risen to $37.38. Among stocks in the S&P 500, 423 pay dividends, the most since August 1998, when 424 firms offered payouts.
Comments: The problem is low interest rates. Image source

No comments:

Post a Comment

Any anonymous comments with links will be rejected. Please do not comment off-topic