Choose Your Dividend Stocks Wisely

While the S&P 500 has shed about half a percent in the past week, the real action has been in the bond markets, where yields have extended a month-long ascent to levels not seen in 16 months. The increase in market rates has had the biggest early impact on the utility sector (XLU), as its heavily indebted and high yielding components look less attractive on at least two fronts. As Charlie Smith, the chief investment officer at Fort Pitt Capital explains in the attached video, it's still a good time to own dividend paying stocks, but there's a catch.

"I think you can (get good dividends) as long as you're not stretching for the extra yield," he says, singling out MLP's as an industry he thinks is ''ripe for some disappointment." Generally speaking, he likes to own stocks that have plenty of free cash to pay their dividends or what's known as low payout ratios, as well as a track record of raising their dividend too. While some have marked the run-up in Treasury yields with a great deal of caution, (the 10-year yield is now higher than the dividend yield on the S&P 500) Smith argues that "rising yields signal a strengthening economy."

Source: Yahoo Finance

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