Dividend-paying stocks performed nicely in 2006
December 21, 2006
Do you know what stocks were stars this year? The ones that pay dividends.
A whopping 73 percent of investors preferred to invest in dividend-paying stocks because they were “reliable cash generators.” They also reflect the financial strength of a company.
Remember the 1990s? I could not give away a dividend-paying stock. All investors talked about were growth and momentum internet plays. We all know how that turned out.
After the dust settled in 2003, we saw a resurgence of dividend-paying stocks. The tax rate on long-term capital gains and dividends was slashed to 15 percent, from a maximum of 35 percent. So over the past three years, nearly three times as many investors increased the amount of money they invested in dividend payers.
Fully 69 percent of investors indicated that they preferred companies that pay a dividend, rather than companies that bought back their own stock. Dividend payers are also more popular with mutual fund managers than in the past. Funds tended to ignore them because of their tax treatment, but not anymore.
Seniors prefer dividend-paying stocks. They provide a reliable income stream with the possibility of a raise now and then. When was the last time that you got a raise from your CD or bond?
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Those interest rates are set until maturity. With people living longer, the effects of inflation are going to eat away at those fixed rates, and some will find themselves using their principal on which to live. Unless you know exactly when you are going to die, this is a bad idea.
We need more education on dividend-paying stocks, not just for seniors. The fear of stock is not always in a person’s best interest, but I see a lot of it.
Yes, the principal can fluctuate with stock, but you are paid on the number of shares you own, not what they are worth at any given time.
Utility companies and REITs are good dividend payers and popular with the investing public looking for income and relative price stability.
To all of you out there who just buy CDs because they are “safe,” you need to evaluate what safe means. Yes, the principal is secure, but the purchasing power is not, and long term that is going to be a major issue that will affect your quality of life.
I don’t want to see retirees having to find employment to supplement their incomes, so let your money do the work. Dividend-paying stocks can rise in value and increase the dividend that they pay over time. What a nice reward for just shifting your risk from the value of the principal to the value of the income that it produces.
Don’t be scared, give it a try. Consider using just one CD to buy a good, solid, dividend-paying stock and see for yourself. I have been in this business a long time, so I have seen how dividends can make a difference for my clients.
Make that New Year’s resolution to expand your portfolio to include dividend-paying stocks or funds. As always, though, you need to be aware of the associated risks versus rewards with dividend-paying stocks. If you purchase funds, please read the prospectus and be aware of the costs.
Since this is my last article for 2006, I want to wish you all a happy holiday and a prosperous new year.
If you would like to learn more about how these stocks or funds might work for you, contact one of our advisers at 841-4277.
• Carol Perry , of Carol Perry and Associates, has been a resident of Northern Nevada since 1983.