Dividend Stock Guide

The percentage of dividend-paying firms in the S&P 500 index fell to 75 percent in 2010, from 94 percent in 1980. The dividend decline is beginning to reverse, however. The percentage of payers hit 78 percent in 2011. Still, some companies can afford to pay much more: S&P 500 companies distribute barely one-third of their operating profits as dividends their stingiest amount ever. Nonfinancial companies in the index hold more than $1 trillion in cash.

Companies in the best position to supply boomers with steadily rising dividends in coming decades will be rewarded with plenty of demand for their shares, says Subramanian. She recommends a could-would-should strategy for investors looking for such firms. Companies that could raise payments include those with plenty of cash and modest debt. Firms that should are those with high returns on equity and stable earnings despite slow growth. And companies that would are those that most likely already are.

Source: SmartMoney

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