John Bullis: Consider buying stock in firms that pay dividends
December 23, 2013
With the low-interest earnings on money market, checking and savings accounts, consider purchasing stock in some good, big, quality companies that pay dividends.
Your stockbroker can give you a list of companies that pay more in dividends then you are earning in interest, and you have a chance the stock will increase in value over time.
An example is McDonald's. It has increased the dividends it pays since about 2002, and the price of the stock has increased since 2002. If you think it will continue to do well, look at its annual reports for the past five years and especially how its dividends have increased to about 3 percent.
Another example is IBM. It has moved from making computers to more consulting work and computer programs. IBM has good cash flow, and the dividends are about 2 percent of the price of the shares. Yes, it has competition, but it also has numerous patents and probably more to be awarded.
If you like AT&T's prospects, you'll really like the dividend yield of more than 5 percent.
Railroads are doing well. Take a look at some of the big, strong railroads.
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A company like Fastenal (it sells industrial and construction supplies, fasteners, tools, blades, pipes and chains). The dividend yield on Fastenal stock is over 2 percent.
If you don't feel comfortable picking a few good stocks that pay dividends, consider some mutual funds available today.
Vanguard (started index funds) has a fund called Vanguard Dividend Growth. It earns about 1.9 percent but is diversified (owns many different stocks). There are other mutual funds that invest in companies that pay dividends or are increasing the dividends they will pay. With many big companies sitting on a lot of cash, paying dividends or increasing the dividends is common.
Some mutual funds you can buy have a "sales charge" or "load." That really is an extra cost of the commission to the seller. Some mutual funds have no or a very low "sales charge." The idea of an index fund is you buy a basket of stocks, and the expense of running the mutual fund is low. There isn't much buying and selling.
If you choose to invest some of your savings, consider stocks that pay dividends.
Did you hear? "A river is like intelligence; the deeper it is, the less noise it makes."
John Bullis is a certified public accountant, personal financial specialist and certified senior adviser who has served Carson City for 45 years. He is founder emeritus of Bullis and Co. CPAs.