Before I get started, I want to invite all of you to my
upcoming webinar, "Profit in Any Market Using One
High-Probability Trade." This FREE live webinar event will take
place today, September 19th at 6:00 ET.
Click here to join
. If you are not able to attend, I urge you to still
so we can send you the video after the event.
Will the so-called fiscal cliff spell disaster for the stock
market? More specifically, what will it mean for dividend
As a refresher, the "
" is the potential expiration of Bush-era payroll, capital gains
and dividend tax cuts at the end of this year.
However, the fiscal cliff should not concern dividend
investors too much.
Currently, dividends are taxed at a maximum rate of 15%. But
that rate could rise in 2013 if Democrats and Republicans can't
agree on a bipartisan intervention.
But there is one important aspect that I am almost certain
will not be mentioned in the debate. The reinvestment of
dividends has contributed to 45% of the total return for the
S&P 500 over the past 80 years.
And while tax implications are an important factor in
determining investment return, you should not allow tax policies
to hamper your long-term planning. Because we all know that
it's a lock-solid guarantee that current tax policies will change
several times during our lifetimes.
You should stay focused on what works - an investment strategy
that has stood the test of time: dividend stocks.
Of course investing in dividend stocks is nothing new. But
there have been some new insights into the most effective way to
invest in this asset class.
For instance, take a look at the following chart:
Oftentimes, investors seek stocks with the highest-paying
dividends. Well, it's a trap.
In the case of dividend investing - second best is best.
Wellington Management recently conducted a study that divided
dividend-paying stocks into quintiles by their level of dividend
payouts - the first quintile consists of the top 20% and so
The chart below, provided by Wellington Management, clearly
shows that targeting dividend-paying stocks in the
second-quintile is hands down the best dividend strategy.
In fact, these second-quintile stocks outperformed the S&P
500 in seven out of eight decades from 1930 to 2010.
So shooting for stocks with the highest dividend payout should
not be the sole factor for selecting a dividend payer. Moreover,
choosing conservative dividend paying stocks (those in the third
through fifth quintiles) doesn't give you any advantage over the
long term. Those are staggering numbers that should not be
High levels of corporate cash, historically low bond yields
and the ongoing demand for income from baby boomers are trends
that should sustain the dividend investment strategy for
Take advantage of what will be a wonderful investment strategy
for years to come. More importantly, make sure you don't pick the
best. Pick the second best.
Our own Ian Wyatt has been doing this for years in his
High-Yield Wealth service with great success. Currently he offers
a monthly dividend calendar with many dividend-plays that reside
in the second quintile.
Check it out.