The Equity Investor’s Only Friend—Past, Present and Future

stock market, dividends, dividend payments, What are the best stocks It would seem that, if you’re a stock market investor, dividends are your only friend in this market. In fact, dividends have been an equity investor’s only friend since the beginning of last decade. For 11 years now, the S&P 500 Index really hasn’t done anything—it’s down slightly from the high set in 2000.

Really, the 1990s were the best years to be in the stock market. Even the owner of an equity index fund did very well. These were exceptional years, with share prices appreciating annually at a rate that was far above average.

Now a corporate dividend seems like the only almost-sure way to generate any return on investment from an equity security. It’s somewhat ironic then that corporate dividend payouts are at a three-year low right now, as corporations hoard cash. According toBloomberg,U.S.company cash, cash equivalents, and marketable securities have grown to $2.77 trillion. This is a 63% increase since 2008. Not surprisingly, companies are hoarding cash because of all the uncertainty in the world and individual investors with the means are also doing the same.

I think it’s fair to expect that dividend payments to shareholders will increase over the next several years, as companies need to attract investors to their stories. It’s kind of like an old-fashioned return to the way stock market investing was done in the past. People invested in the brand-name companies they knew and most of these kinds of companies paid dividends every quarter. There weren’t great expectations for capital appreciation.

The more you look, the more you actually do find decent businesses out there that pay dividends. Some companies pay out more than others, and it certainly depends on the kind of business. For example, an operator of parking lots might not offer the highest growth rates in the world, but a business like this can be steady, so they can afford to pay out a dividend to shareholders. Traditionally, technology companies have been loath to pay dividends because of the inferred criticism that they would not therefore be investing in new innovations. This view is changing now and, in an environment with very low expectations, it’s becoming more welcome.

What are the best stocks that pay dividends? The list is quite long; but, in most cases, they tend to be well-established, brand-name companies that you’d recognize.

Timing is actually the most important attribute in successful stock market investing. Buying low and selling high is a lot more difficult than it seems. If it’s one thing I’ve learned, however, it’s that, a lot of the time, the best investment strategies are those that go against the prevailing sentiment in the marketplace. It’s very difficult to buy low if you’re not a contrarian investor. In this kind of stock market, there’s no rush for investors to take new action. One thing is happening though—dividend yields are going up.