Investors Flock to Dividend Stocks

During the stock market’s go-go years of the 1990s, investors turned their backs on dividend stocks. But now the tide has turned, and people are snapping up those shares.

The 100 stocks in the Standard & Poor's 500 Index with the highest dividend yields have gained 3.7 percent on average so far this year before dividend payouts, according to Birinyi Associates, The Wall Street Journal reports. Meanwhile, the 100 lowest-yielding stocks have dipped 10 percent.

The recent volatility in financial markets, fiscal crises in Europe and the United States, and sluggish global economic growth make dividend stocks attractive. Investors also want a piece of U.S. corporations’ record cash hoard of more than $2 trillion.
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"Investors are demanding the money back in one form or another," Jennifer Ellison, a portfolio manager at Bingham, Osborn & Scarborough, tells The Journal. Purchasing dividend stocks isn’t “the holy grail that's going to solve all your problems, but it's one more way to mute that volatility," she says.

Record low interest rates also make dividend stocks attractive as an alternative to bonds. With the 10-year Treasury note yielding less than 2.0 percent, investors have a bevy of choices among blue-chip stocks with yields above that level and the potential to rise in value.

In deciding on dividend stocks, experts recommend looking for yields of 3 to 6 percent. A lower yield isn’t worth the risk, and a higher yield may be danger of being cut.