Dividend Strategy Pays Off

With short-term CDs, Treasury bills, and money funds paying practically nothing — and designed to stay at that level by promise of the Fed — the dividends paid by large companies are attractive. And stocks hold the possibility of price appreciation as well as dividend growth. Over the past 70 years, dividends have contributed nearly half of the Dow Jones industrial average’s total return. And despite the economic slowdown, dividends have been increasing in the past few years, as companies hesitate to build new factories and hire more people. Instead, they are returning profits to their shareholders.

But just as there was a danger in focusing on “hot” Internet stocks in 2000, or “hot” financial stocks in 2007, there are dangers in focusing solely on high yields today. Jeffrey Rode, managing director of Segall, Bryant, &Hamill in Chicago, points out the difference between attractive current high yields and future prospects for growth. He counsels: “Remember it’s growth in income, not growth and income, that’s important. Dividend payers outperform non-payers. And dividend growers outperform high current yield. Dividend growers are also your hedge against inflation.”


Source: Chicago Sun Times

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