The Dividend Stock Recovery: Get Ready for a High-Yield Bonanza
by Alexander Green, Chief Investment Strategist
Monday, February 22, 2010: Issue #1201
It’s been a tough time for income investors lately.
Ten-year Treasuries pay less than 4%. The S&P 500 yields just over 2%. Money market fund returns are microscopic, paying an average of just 0.05%. (At that rate, it will take your money one thousand years to double.)
What should you do?
Take a look not at the stock market, but inside it. The S&P 500 may yield 2.1%, but many individual stocks are yielding far more. In addition, yields are about to arch higher.
Here’s why…
The Dividend Nosedive Is Over
In a normal year, companies announce 10 to 20 times more favorable than unfavorable dividend changes. But the last two years have been anything but normal.
The financial crisis forced many banks and other financial companies to cut or suspend dividend payments. And the credit crisis and recession led companies in many other sectors to cut back wherever they could to conserve cash.
- In 2009, for the first time in half a century, American companies announced more dividend cuts than increases. Overall, these dividend cuts cost investors $58 billion.
- On a quarterly basis, the first three months of 2009 were the worst of the cycle, with 64% of dividend announcements being negative. (That figure fell just a little short of the record 67%, set in the second quarter of 1958.)
But the worst of the recession is now over (witness Fed Chairman Bernanke’s decision last week to raise the discount rate by a quarter-point to 0.75%) and the number of negative dividend decisions is already declining.
Howard Silverblatt, senior index analyst at S&P, says, “The worst is over for dividends. Standard & Poor’s believes that a dividend recovery is underway.”
I know, I know. An average 2.1% S&P 500 dividend yield isn’t much to get excited about. But unlike fixed-rate investments, stock dividends rise over time. And sometimes they rise a lot.
Dividends Are a Long-Term Investor’s Best Friend
I’ll never forget the time 25 years ago when as a young stockbroker – still wet behind the ears – I suggested to a client that she sell one of her oil stocks.
“I can’t sell that stock – I need the dividend,” she said.
I reminded her that it was only yielding 2%.
“Son, it’s yielding 2% to buyers today. My annual dividends are more than my original investment.”
Two lessons here…
- When a client calls you “Son,” you’ve almost certainly offered some bone-headed advice.
- Never mistake today’s payout for a long-time investor’s yield.
So if you’re looking to fund a retirement 10 or 20 years out, dividends then will almost certainly be a lot higher than they are today.
Six Stocks Spitting Out Healthy Dividends
Also, if you look within the S&P 500, there are plenty of stocks with above-average dividend yields…
~ Bristol-Myers Squibb (NYSE: BMY) – 5.1%.
~ Eli Lilly (NYSE: LLY) – 5.7%.
~ Pitney-Bowes (NYSE: PBI) – 6.4%.
~ AT&T (NYSE: T) – 6.7%.
~ Altria (NYSE: MO) – 6.7%.
~ Frontier Communications (NYSE: FTR) – 13.1%.
With retirement ahead of you and the worst of the recession behind you, consider scooping up a handful of these high-dividend payers.
Five years from now, these stocks should be significantly higher. And that goes for their quarterly payouts, too.
Good investing,
Alexander Green
Editor’s Note: Dividend stocks represent a crucial part of any investment portfolio – but the consistent passive income assumes even more importance the closer you get to retirement age.
That’s why The Oxford Club publishes the monthly Ultimate Retirement Letter, which gives specific advice on issues regarding retirement, plus income investments geared towards a retirement portfolio. For example, the current portfolio is packed with 12 top-quality dividend stocks, with yields ranging between 2.7% and 10.5%.
The Ultimate Retirement Letter is just one of the many benefits that you’ll receive as an Oxford Club member. To get a full list – and find out how you can become a member, simply click this link.
- Nucor (NYSE: NUE) & The Golden Dividend Ratio
- Choosing Dividend Stocks: Six Steps For Finding These Safe, High-Yield Investments
- Stock of the Day: Altria (NYSE: MO)
5 Responses to “The Dividend Stock Recovery: Get Ready for a High-Yield Bonanza”
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Alexander Green is the Investment Director of The Oxford Club. A Wall Street veteran, he has over 20 years experience as a research analyst, investment advisor, financial writer and portfolio manager.
February 22nd, 2010 at 2:55 pm
I agree with your dividend investing , however I live in Canada and our tax rules for foreign dividends is treated differently than tax on Canadian dividends. Do you not track Canadian stocks for your subscribers ?
thanks
Reply
February 22nd, 2010 at 3:14 pm
Hello Alex,
I have a question? How do you know what the annualized dividend will be for any given dividend stock?
i.e. If you owned 100 shares of XYZ stock at 10.00 per share and the dividend was listed at 13.1% does that mean that you would earn $131 in dividends annually if the dividend rate remained unchanged?
If this is not how you calculate this would you please explain how do you know how much you will earn in dividends from any given dividend stock.
Thanks Alex,
Bob Rubenstein
~ Bristol-Myers Squibb (NYSE: BMY) – 5.1%.
~ Eli Lilly (NYSE: LLY) – 5.7%.
~ Pitney-Bowes (NYSE: PBI) – 6.4%.
~ AT&T (NYSE: T) – 6.7%.
~ Altria (NYSE: MO) – 6.7%.
~ Frontier Communications (NYSE: FTR) – 13.1%.
Reply
February 22nd, 2010 at 9:59 pm
i am a member, but do not receive ‘ultimate retirement newletter – how do i subscribe? looking for monthly dividends…
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February 28th, 2010 at 1:39 pm
I have been investing in Canadian energy trusts since Sept 2009 & I am happy with the growth in price & dividends. These are PEY-UN.TO or PEYUF.PK (in America) they have been paying me 12 cents each month or $1.44/year (they just paid total 1 Billion$ in dividends) I bought at 8.57$/share. Provident energy trust PVX in NY & they have been paying me 6 cents every month. 72 cents on 8$ stock (I bought at 5.75), and Enerplus resources ERF. All are natural gas & oil stocks this year it has been volatile as are gas prices. But as economy picks up, then in my opinion they will also climb.
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February 28th, 2010 at 4:43 pm
Interesting article, and I do like that “son” comment.
I am focusing now on Johnson & Johnson and Procter & Gamble and Pepsi for a solid base of dividend paying stocks, rather than on BMY and AT&T. When the dividends are that high, I question how sustainable they are.
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