The stock market is in a state of major flux, going way up and way down, often on the same day. It reflects investors' general anxiety about the U.S. economy, Europe's woes, and everything else that's uncertain. When investors don't know what to do, they either get out of the market by selling and sitting on the sidelines or they try to trade stocks, in one moment and out the next. They don't buy and hold. That's passe. Doesn't work in today's market is what some say. (Don't believe it....when the market turns and runs, you'll want to be in, not watching from the sidelines.)
When the market has no real direction, it still has plenty of opportunity, especially for investors who have patience. No one knows how anything will turn out (will the housing market get back to its glory days? will there be new jobs soon? will inflation come roaring back?). Uncertainty seems more prevalent than ever today. But wise investors aren't selling. They're buying on the days when the market goes down like a running back hit by Troy Polamalu.
They don't know when the market will turn around either. But they do know if they buy stocks with healthy dividends, they'll at least get paid to wait. And they'll get better returns than their local (or national) bank offers. Or treasury bills. Or any other short term (or most long term as well) investment. Of course, they know there's more risk. But if you can buy a blue chip stock that gives well above average returns and have patience, the odds are good you'll not only earn the dividend but have some capital gains thrown in as well.
For example, right now AT & T (T) has a yield of 6.2%. The odds are very good this behemoth will be around for a while to pay out the quarterly distribution. Sure it has lots of competition, but it's also got solid earnings. Dividends take only half of them. Another one: Chevron Corp. (CVX). It pays $3.12 a year for 3.3% return. Nothing to get too excited about unless you compare it to .25% at your bank for a CD. If you like the oil and gas business, CVX is one of the leaders. This one may surprise you: Intel (INTC). Yes, the largest semiconductor maker in the world with a Market Cap of $109.09 billion pays a good dividend: 84 cents a year. With the stock trading at $21, that puts the yield at 4%. Not bad for a high tech company that is recognized as a leader in its industry. Once a high flying, high multiple growth company, it's now considered a mature, solid, steady performer.
There are many, many more quality stocks that pay good dividends in this market. While they all carry a higher risk than a deposit account or treasury issue, many can form the core of a solid portfolio, one that most investors would want to hold until there is a clearer direction for the market. A good source for large stocks with good dividends is the Dow Jone Industrial Average. (For a write up on the DJIA and a listing of all 30 stocks, see the new area on our site entitled This Is The Dow Jones.)
One caution: don't buy stocks with extraordinarily high payouts. There's a reason they yield so much: investors don't believe the dividend will continue. As always, it's risk and reward. In this case, the usual saying is reversed: The higher the reward, the higher the risk. Stick with stocks that have strong earnings records and decent dividends. This market really punishes stocks that don't keep up their distributions. Stay away from the ones that pay much more than everyone else.
In this market, go for the dividends. Capital gains are very hard to capture as volatility can wipe out years of price gains in a matter of hours. Rather than try to trade, which most can't do successfully, prepare yourself mentally for the ups and downs, buy stocks with high dividends, and ride out this particularly difficult time in the market....and get paid well for doing it.
- Ted Allrich
September 13, 2011
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