Dividend Stocks Aren’t Bonds

The search for retirement income in today’s low-yield environment inevitably comes back to dividend paying stocks. How could it not? Money market funds and short-term bank CDs pay about .5%; the 10-year Treasury bond pays only about 2%. Lots of blue chip stocks pay significantly more, including Verizon (5.3%), Merck (4.4%), Pepsico (3.1%), Lockheed Martin (4.7%), Intel (3.1%) and Abbot Labs (3.5%). In fact, the average dividend yield for stocks in the S&P 500 is above 2%–higher than the venerable T-bond. That’s crazy. For most of the past 50 years, the T-bond’s yield has been at least double what you could get by owning a basket of S&P 500 stocks.

No matter how you cut it, though, dividend-paying stocks usually end up in the conversation. So it’s worth reminding yourself that even blue chip multinational stocks are, well, stocks. They are far more volatile than bonds, meaning that the market value of stock holdings swings higher and lower in a much broader range. You could easily have a year’s worth of dividend payments wiped away by a declining share price if you sell before the stock recovers.

Source: Time

Related Articles:
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- Increasing Dividend Yield Part VI: Time
- Increasing Dividend Yield Part V: MLPs
- Increasing Dividend Yield Part IV: Bonds
- Increasing Dividend Yield Part III: Preferred Stock