Why Dividend-Paying Stocks Are a Smart Investment in Today's Economic Climate
The investment market has been rocky the past few years, and there is no indication that volatility is going to change any time soon. But current market conditions make it an excellent time to invest in dividend-paying stocks, says Sonia Mintun, CFA, vice president with Ancora Advisors LLC.
Why does dividend-oriented investing make sense in today’s markets?
How does inflation impact dividend-paying stocks?
Historically, dividends have grown faster than the rate of inflation in the U.S. With 3 percent inflation now, short-term, high-quality, fixed-income instruments are losing purchasing power. You can get a 3 or 3.5 percent dividend yield on a diversified portfolio of good quality stocks, and have potential for income growth relative to the fixed coupon on bonds. The average dividend income from a portfolio of S&P indexed stocks has grown at a rate of 5 percent per year since inception in 1957, which is one full percentage point over the rate of inflation in the same time period. As a result, dividend stocks offer both the potential for capital appreciation and income growth. Dividends increased more than 10 percent in 2011, on top of a 10 percent gain in 2010. Also, dividend-paying stocks have outperformed more often in higher inflationary times.
What vehicles can be used to implement a dividend-paying strategy?
Are all dividend-paying stocks the same?
Sonia Mintun, CFA, is a vice president as well as an Investment Advisor Representative of Ancora Advisors LLC (an SEC Registered Investment Advisor). In addition, she is also a Registered Representative of Ancora Securities, Inc. (Member FINRA/SIPC). Reach her at (216) 593-5066 or firstname.lastname@example.org.