With interest rates low and bond yields falling, investors would be wise to buy stocks in companies that pay healthy dividends, financial experts say.
About half the companies on the Standard & Poor's 500, including big names like AT&T, Merck and Johnson & Johnson, pay annual dividend yields of 2 percent or more, on par with the benchmark 10-year Treasury note yields at 2.15 percent and above the 5-year Treasury note, which have dipped below 1 percent.
The Federal Reserve has said interest rates will stay low for another two years, which means bond yields won't be skyrocketing any time soon, financial advisers
"In the tough market environment and with low Treasury yields, stocks with healthy dividends … are quite attractive," says Drake Johnstone at Davenport Consulting, according to USA Today.
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The SPDR S&P Dividend exchange-traded fund, which contains big companies with the largest dividends, may be down 4.8 percent this year, but it's beating the 7.4 percent loss posted by the SPDR S&P 500 ETF, which contains all the stocks.
Plus dividends protect against inflation and market volatility.
"If dividends go up as fast or faster than inflation, then you're protected," says Tom Cameron, portfolio manager of Dividend Growth Advisors, USA Today adds.
Some experts are urging investors to consider foreign stocks that pay healthy dividends due to a weaker dollar.
Money flowing in from overseas gives investors more bang for their weaker bucks.
"In this kind of choppy market, dividends are huge" pillars of support for a diversified portfolio, says Alec Young, international equity strategist at Standard & Poor’s Equity Research, according to MarketWatch.
Dividends will serve as an even bigger source of total return from foreign equities as stock gains moderate, Young adds.
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