Beware Garden Variety Dividend Stocks

With the S&P 500 Index up 3-fold since lows hit at the height of the financial crisis in March of 2009, I don’t think I’m going out on a limb saying that stock investors probably won’t see that kind of return over the next six years. If collective equity returns revert to a more normal path of appreciation, an indexed large-cap portfolio may see only a fraction of that return. If the market decides to reprice lower, or wade water as it did between 2000 and 2010, a period sometimes now referred to as “The Lost Decade,” investors may end up being sorely disappointed over the next few years.

Stock seekers who wade outside the land of indexed equity into individual stocks typically start with a gravitation towards large-cap, household name dividend stocks. And with good reason. Companies like Procter & Gamble (NYSE:PG), Coke (NYSE:KO), Colgate (NYSE:CL), and Johnson & Johnson (NYSE:JNJ) possess large, global, established businesses, barriers to entry, as well as fairly predictable cash flows and forward dividend growth potential. Investors who own shares in these companies sleep well at night knowing that a destruction of operational fundamentals is unlikely.

Source: Learn Bonds

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