As The Market Pours Dividends Reign

The last few weeks of stock action have left an increasingly sour taste. Last week, stock prices dipped below lows reached during the so-called Flash Crash of early May. And there seems little relief from the pelting pessimism. But the retreat in prices has created some interesting investment possibilities. Shares of lots of good companies with decent cash positions are sporting historically high dividend yields. In a nervous market, a basket of dividend payers can be a shrewd way to position your portfolio to ride out the storm.

Like several other analysts and investors, HSBC has started noting the attractiveness of stocks paying high dividends. That's because dividend yields are rising, quickly. A dividend yield is calculated by taking the annual dividend payout and dividing it by the company's share price. So, if Mankato Fishing Lures (not a real company) trades at $100 a share and pays out $3 a year in dividends, it has a dividend yield of 3%. This yield is often compared to the yield on Treasury bonds or corporate bonds. Dividend yields are considered attractive when they rise above 10-year Treasury yields, which are currently at 3.3%. A good dividend also tends to pay more than the yield on a broad market measure. The Standard & Poor's 500-stock index is paying an average yield of 2.03%, and the Dow Jones Industrial Average is at a more handsome 2.7%.

Source: Wall Street Journal

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