If there truly isn't a sure bet in the markets, investing expert and author Joseph Hogue told Newsmax TV that dividends just may be the next best thing.
"There's a lot of great reasons to be in dividends," he told this week’s “The Income Generation Show.”
"They do a lot of good things for your portfolio. One thing that has been consistent throughout stock history is that dividends have provided a positive return 100 percent of the time," he told host David Scranton.
"Even when stocks fall, that dividend you received is a positive return. The stock price on the company that pays that dividend did go down but that dividend is a positive return without fail," said the author of “Step by Step Bond Investing: A Beginner's Guide to the Best Investments and Safety in the Bond Market.”
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"Dividend investing is only going to become a larger part of your portfolio as you age and as your risk tolerance and your need for income shifts. It can really take a lot of the risk out of your stock investing and increase your yields from the portion of your bond portfolio," he explained.
He said on average, common shares of stocks in the S&P 500 pay about a 2 percent yield.
"Small stocks are a little bit lower, so if you're really targeting dividends stocks you should aim for at least 3 percent and up to around 6 percent or so," he said.
"Higher than 6 percent, you start getting into a lot of stocks that maybe the price has fallen and the dividend just hasn't been cut yet. You start getting into companies that aren't really keeping enough cash back to grow their business, so maybe the future dividend yield might be in jeopardy but that 3-6 percent return plus any appreciation that you get from the stock price is usually a good target to look for," Hogue said.
For savvy dividend hunters, he offered what he called some "fundamental" factors to consider.
"The price-earnings ratio or the evaluation in a stock, and check that not against the current market but against historical evaluations for the stock just to see how pricey it might be right now," he said.
"You want to look at the dividend yield and again, that's against where it's been in the past. Has the dividend yield kept up with the stock price?" he asked.
"What we're seeing in a lot of stocks right now and especially consumer staples that the stock price has surged so much that the dividend yield has actually calmed down because management hasn't been able to keep up with that stock price, so the dividend yield is falling," he explained.
"You also want to check the price performance on a stock. If the dividend yield is exceptionally high is it just the fact just a function of a falling stock price and the dividend hasn’t yet been cut. We see that in a lot of companies that they get into trouble," he warned.
"The dividend yield spikes, investors pour in after that yield and they are ultimately disappointed by a fallen dividend," he said.
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