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In Times Like These, Follow The Dividends
Posted On Thursday, June 17, 2010 at at 4:37 PM by Finance Fanatic
When you look at days like today in terms of trading trends, it may be a bit frustrating when trying to decide what positions to take. Short term trends have been very strong, however, looming economic pressures are still very much present, making it a risky move to move into a bullish position. On the flip side, bears have been severely punished for the last year and a half, so holding a bear portfolio may seem out of the question.
Sure, eventually the more macro trends will begin to take place, but that has yet to be seen the past couple of months. The market has been ping ponging back and forth. As a result, unless you want to partake in the guessing game, there are certain positions which are definitely more appealing in this type of trading environment.
For me, I am finding a bit of a safe haven (with less risk) in investing in stocks that are yielding higher dividends. There are a couple of reasons why it make sense at this point.
First, historically, high dividend yielding stocks outperform during a downward market. In 2002, when the S&P fell 23%, companies who did not issue a dividend fell an average of 30%. Companies that did only fell 11%. In 2008, we saw this also be the case, as dividend paying stocks outperformed non-dividend paying stocks over 6%.
So why is this the case? First of all, the thought is that if stocks are going down anyway, you might as well receive a good dividend in the process. Also, good dividend paying stocks are very popular for retirement accounts (401K and IRA) which helps keep the volatility much lower. Not only can you enjoy a greater hedge against a potential market crash, but you also get nice monthly dividends as well.
Another reason these securities tend to do well is because stocks issuing strong dividends is because if companies have the retained earnings to issue them, they are usually performing with strong revenues. Thus, companies with these trends historically hold up better in worse times. Here are a few companies with extremely large dividends. KSP, AGNC, CMO, CIM, VZ and RSO. Happy Trading.
Buying good companies that pay a nice dividend are always a great investment idea.
This is a nice post in an interesting line of content.Thanks for sharing this article, great way of bring such topic to discussion.
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