One of the most boring classes of investments in many eyes is that of dividend paying stocks. Why? Because the regular dividends mean that you get a regular infusion of cash. And that generally means that returns are rather low. Steady, but low. But that’s not always a bad thing. The Motley Fool points this out about dividend paying stocks:
Between January 1926 and December 2006, 41% of the S&P 500’s total
return was due not to the price appreciation of the stocks in the
index, but to the dividends its companies paid out.
And, even though things are exciting on the stock market right now, it pays to look at the fundamentals. It also pays to look to the future. MarketWatch points out that the current track to the stock market may not last:
But the market’s advance might still be dented, or even derailed, by a
slew of economic data, along with the dollar hitting record lows, crude
oil at record highs, possible profit warnings and potentially more
victims of this summer’s credit crisis.
While this doesn’t mean that you should dump all of your risky stocks, it does mean that you shouldn’t shun the more stolid dividend paying stocks, either. As always, it’s all about your current situation, goals and risk tolerance. If you’re a while away from retirement, you can afford to take some risks on the non-dividend stocks, using dividend-paying stocks to add some degree of stability to your investment portfolio. If you are heading for retirement soon, now is the time to start moving toward the “less exciting” stocks that offer the chance of regular income (some of which can be re-invested for additional returns).
Just remember this caveat: Be careful when choosing dividend paying stocks. Some appear to pay higher dividends than others in an industry, and this could be a sign of trouble. As always, temper your investments with a good dose of common sense.
Disclaimer: I am not an investment professional. I am an enthusiastic amateur. Before making an investment, check with a professional and/or do your own research.