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Dividend Payments Are Booming Along with Stocks

By Michael Kling   |   Wednesday, 13 Mar 2013 08:11 AM

As the Dow Jones Industrial Average has been setting all-time highs, rising stock values have received plenty of attention. But dividend payments are also booming.

The companies in the Dow paid $117 billion in annual dividends in February, or $347.43 per share. The amount was only 7 percent shy of the record $372.46 per share distributed in July 2007, reports CNNMoney, citing data from FactSet Research.

Dividend payments will surely pass that record, experts believe.

Editor's Note:
Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

For one thing, corporations have plenty of cash on hand. According to CNNMoney, companies listed on the Dow have over $493 million in cash, just under the record amount of $495 million in 2011.

Companies are emphasizing dividends more, Peter Tuz, president of Chase Investment Counsel, told CNNMoney. Those that haven’t paid them before are paying them for the first time, and those that have paid them are increasing them.

Microsoft, for instance, now has a dividend yield of over 3 percent, compared with 1.5 percent in 2007, according to CNNMoney. The technology giant sent out $2.6 billion more in dividend payments in 2012 than 2007.

The rise in dividends represents a change in corporate thinking as well as an improving economy. After years of being enamored with growth, corporations have recognized that strong dividends can help support their stock values. A healthy yield, they realize, can draw conservative investors who would otherwise put their money into bonds.

The companies in the Dow, notes CNNMoney, have an average dividend yield of 2.8 percent, compared with the 10-year Treasury yield of 2.06 percent.

Although dividends are great, investors should never pick a stock just for its yield, warns investment advisor Louis Navellier in an article for InvestorPlace.com.

CenturyLink has one of the highest yields in the Telecom services industry, yet it missed its fourth-quarter earnings estimates last month and shares dropped more than 20 percent.

“With some companies, a high dividend yield isn’t always a good thing: Sometimes a high yield is actually caused by a drop in stock price,” Navellier cautions.

Instead of chasing yield, he advises, seek companies with consistent and rising yields and examine the company’s fundamentals.

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

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