With interest rates stuck near zero and the stock market giving off continued signs of uncertainty, dividend stocks represent an attractive investment, experts say.
“In an environment where economies around the world are slowing, growth is starting to get scarce,” Thomas Huber, a portfolio manager at T. Rowe Price, tells The New York Times.
“And interest rates are so low, it makes sense to focus on companies that can grow their dividends over time.”
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While U.S. corporate profits hit record highs last year, dividends haven’t returned to the peaks they reached before the 2008-09 financial crisis. But they may get closer soon.
Dividend payments for stocks in the Standard & Poor’s 500 Index are expected to rise by 11 percent on average this year, according to Howard Silverblatt, a senior index analyst at S&P. “The dividend story is good and should continue to be good,” he tells The Times.
Companies are paying out less than 30 percent of their earnings as dividends, compared to a historical average of around 50 percent for S&P 500 companies, Silverblatt says.
And corporations have record cash holdings to disperse to shareholders.
Investors should focus on stocks with dividends between 3 and 6 percent, Josh Peters, director of equity income strategy for Morningstar, tells Bankrate.com.
Yields below that range don’t adequately compensate you for the risk of stocks, and yields above it would be in danger of getting cut.
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