The New Better Bonds: Dividend Stocks

With all the headlines bonds have been making lately—and most aren't good—it's hardly surprising that many pros have been moving away from this nearly $36 trillion business. But that doesn't mean they haven't found a doppelganger of this once-steady form of income. After all, millions of Americans at or near retirement need enough steady income every few months to pay for the basics, finance vacations or even buy a few rounds of golf. The answer: stocks that act like bonds, only better.

Indeed, dividend-paying stocks are fast becoming the "bonds" of the future, with more than $5 billion having gone into funds that invest in them since October, according to fund research firm Lipper. And it's not just the same old names, like IBM and Johnson & Johnson, crowding the portfolio lineups; pros say there are also some great finds among smaller and more obscure firms. Many of these smaller fries are generating plenty of cash and have long records of paying or boosting their dividends, with yields that stack up well against most government bonds. But perhaps the biggest draw is how dividend-paying firms, especially those with a history of raising payouts, can withstand inflation, which can diminish a bond's value fast. "With a bond, once you buy it, you are locked in at that rate. But with a stock, you could get a higher dividend," says Bernie Williams, a vice president at money-management firm USAA.

Source: Wall Street Journal

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