A dividend is the payment that a company distributes to its shareholders as a percent of earnings. Management can decide whether to pay a dividend, how much it is, and the frequency of payments. Dividends are often distributed quarterly and are quoted as the amount of dividend per share. Companies that issue such payments are called dividend paying stocks and are attractive for investors seeking income in addition to capital appreciation.
On the day that the DOW, S&P 500, and NASDAQ Composite dropped two percent on global growth worries, once again, several companies reported very good numbers.
But investors are paying less attention to corporate results and more attention to economic news from around the world that suggests that the only mature economic engine running at any positive speed currently is the U.S. economy.
PepsiCo, Inc. (PEP) had another good quarter. The company’s two businesses, food/snacks and beverages, produced modest single-digit growth in consolidated sales.
Net earnings grew five percent, while earnings per share grew seven percent over the third quarter last year. Management also increased its expected constant currency earnings-per-share growth for this year from eight to nine percent.
The company expects to return a total of some $8.7 billion to shareholders this year, comprising approximately $3.7 billion in dividends and $5.0 billion in share buybacks.
PepsiCo is on track to deliver what investors expect. The stock just hit a new all-time record-high still with a 2.8% dividend yield.
Getting into third-quarter earnings season a little further should help focus the stock market’s attention but clearly, sentiment has really turned.
If the trading action continues to wane, good businesses are going to become more attractively priced and equity investors looking for new positions will have better choices.
I do believe that for the investment risk, sticking with existing winners is a good strategy regarding large-cap, dividend-paying blue chips.
Dividend income really matters in a slow-growth environment, and corporations would still rather return cash than take on major new ventures.
Previously in these pages, I’ve written that for long-term investors, I … Read More
A lot of good companies with solid investment prospects going into 2015 are pushing new highs in an otherwise trendless stock market before the end of another reporting period.
Market leaders have kept their momentum the last few years and are likely to keep doing so as earnings reliability and dividends keep investors buying.
Microsoft Corporation (MSFT) continues to tick higher in this market. The position was $35.00 a share at the beginning of the year and is now just short of $50.00.
What many of these established blue chips offer are good balance sheets, reasonable financial growth, and good prospects for rising dividends going forward. A stock like Microsoft is a simple, large-cap solution that continues to work in a slow-growth environment.
There’s no need for an equity market portfolio to be complicated at this stage of the business cycle. Dividend income is key, because that’s what institutional investors are buying.
And the good news with blue chip leadership is that it comes with less investment risk. The business cycle is not yet mature enough to support itself and therefore the investing marketplace remains somewhat risk averse.
Or at the very least, many institutional portfolios comprise dividend-paying blue chips, peppered with the stock market’s more aggressive names, like Facebook, Inc. (FB) and Chipotle Mexican Grill, Inc. (CMG). (See “Where You Can Find Value in Stocks Right Now.”)
This is a marketplace where you don’t need to be in the riskiest sectors in order to capture most of the stock market’s potential capital gains. Dividend reinvestment remains an excellent way in which to build wealth in a low interest rate … Read More
The monetary environment is still highly favorable to stocks and should continue to be so well into 2015. However, while this market can handle higher interest rates, stocks can only advance in a higher interest rate environment if gross domestic product (GDP) growth is there to back it up.
Because of the capital gains over the last few years and the across-the-board record-highs in many indices, investment risk in stocks is still high. Accordingly, it’s worthwhile reviewing your exposure to risk, particularly regarding any highflyers in your portfolio; they get hit the hardest when a shock happens.
Currently, geopolitical events between Ukraine and Russia have the potential to be the catalyst for a correction. It could happen at any time depending on what transpires.
The risk of stocks selling off on the Federal Reserve’s actions is diminishing. The marketplace is well informed about the central bank’s intentions and it’s quite clear that Fed Chair Janet Yellen doesn’t want to do anything to “surprise” Wall Street.
I still view this market as one where institutional investors want to own the safest names. The economic data just isn’t strong enough for traditional mutual funds and pensions to be speculating.
This is why the Dow Jones Industrial Average and other large-cap dividend paying stocks are so well positioned. They offer great prospects for increasing quarterly income, some capital gain potential (still), and downside protection compared to the rest of the market.
Of course, all stocks are risky. An equity security is priced in a secondary market where fear, greed, emotions, and a herd mentality are part of the daily pricing mechanism.
Accordingly, anything … Read More
As a strong believer in the wealth-creating effects of large-cap, dividend paying stocks, I’m also an advocate of dividend reinvestment, which is the purchasing of a company’s shares using the cash dividends paid.
This can be done commission-free from your broker and/or through the company itself if it offers such a program.
Dividend reinvestment is a powerful wealth creator if you do not require the income paid out by a corporation. It is a great way to invest and to grow your money over the long-term.
As the timespan increases, the percentage return produced by the S&P 500 becomes weighted to dividends. It’s kind of old school, but the numbers add up. Even over a few short years of good broader market performance, total investment returns can increase substantially over simple capital gains.
For example, if you bought shares in Intel Corporation (INTC) at the beginning of 2010, that stock would have produced a capital gain to date of approximately 50%.
But if you reinvested the dividends paid by Intel into new shares each quarter, your total investment return, including dividends and new shares, jumps to approximately 75%, which is a very big difference!
In the utility sector, Duke Energy Corporation (DUK) increased on the stock market about 30% over the last three years. But by reinvesting the company’s dividends into new shares during that same time period, your total return could have climbed to around 49%. Again, this is a material improvement.
Of course, dividend reinvestment excludes the potential returns to be had with the income being applied to other potential assets.
But the process is so easy, and … Read More
My dad is earning a few percentage points on his fixed-income yields. Fortunately for him, that’s sufficient to live on when combined with his monthly pension and savings. He has no mortgage and lives a pretty normal, but somewhat frugal life.
In fact, Dad has always favored the fixed-income market for his investments as he doesn’t like risk. But for many Americans, the need for an ample flow of income during your retirement is a necessity for surviving, especially if the Great Recession wiped out your 401(k).
With the 10-year bond yield languishing below three percent, it would be difficult to live on this income, unless you have sufficient bond holdings or other avenues of income, like my dad’s pension. Having a more frugal or cost-conscious lifestyle also helps for many in retirement.
Yet the one area that I feel has been extremely positive for investors over the past five years is the dividend paying stocks that provide far higher yields and preferred tax treatment versus bonds. My dad may not be open to dividend paying stocks, but it makes sense for many other investors.
In reality, the Dow Jones and dividend paying stocks have returned some impressive capital gains and income over the past years. I expect this to continue in the current investment climate, where the stock market is favoring less risk.
Take a look at the Dow Jones Industrial Average (DJIA), which is slightly in positive territory, but at the same time, laying out income via dividend paying stocks.
The income stream has also been inviting with the average dividend yield on the 30 Dow blue-chip dividend … Read More
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