The current low-interest-rate environment has caused many investors to search for sources of incremental yield. Two of the more popular approaches involve dividends: stocks with high dividends (or higher yields than available from safe fixed income investments) and stocks with fast-growing dividends. We will examine two of these alternatives to see if they're good choices. High-dividend stocks To represent high-dividend stocks, we'll use the SPDR S&P Dividend ETF (SDY). This ETF tries to match the total return performance of a dividend-stock index, the S&P High Yield Dividend Aristocrats Index. While the current dividend yield of the S&P 500 Index is about 2 percent, the yield on SDY is about 3.2 percent. So, that's the attraction, but is it the best way to achieve the goal? We'll analyze the fund using a three-factor regression, which means analyzing the fund's exposure to three major risk factors: Beta -- or the exposure to stock-market risks Size -- or the risk of … [Read more...] about The dangers of dividend-paying stocks
Best dividend paying stocks
If you're like me, you love dividend stocks. However, it's easy to get caught up in the search for a big yield and miss the bigger picture of what makes a great dividend investment.So how do you find the best dividend stocks? It's actually pretty easy to find a short list of great dividend-paying companies to select from if you follow these five simple steps:Step 1: I like a streakMy first step is always to look at a company's dividend-paying history. I'm looking for a company that has a long history of increasing its dividend, which shows a management commitment to returning value to shareholders over time. You should tailor the number of consecutive annual increases to your taste. For example, some investors will only consider Dividend Aristocrats or companies that have increased their dividends for 25 years or more. Others are willing to go down to a decade of annual hikes.Image source: Getty ImagesBut you might want to be flexible here. For example, utility Southern Company (NYSE: … [Read more...] about Here’s How to Find the Best Dividend Stocks
There's a misplaced belief among investors that they can earn the highest returns in riskier investments. Historically, however, the best gains have come from investing at the lower end of the risk spectrum, which are companies that pay a growing dividend. It's not even close. Since 1972, the stocks of companies that increased their payout each year generated a total average annual return of 9.9% while those that didn't pay one only returned about 2.4% per year, according to a study by Ned Davis Research. Even better, these dividend growth stocks outperformed with significantly less volatility than non-payers. While simply paying a growing dividend could provide the fuel needed to outperform, stocks growing their payouts at a faster pace should have the edge in leading the way. Here are two that plan on delivering at least a 20% increase this year -- and can continue growing it at a fast pace in future years -- which could enable them to achieve market-crushing total returns. … [Read more...] about These 2 Dividend Growth Stocks Could Crush the Market in 2018 and Beyond
Antero Midstream Partners (NYSE: AM) is one of the fastest growing master limited partnerships (MLPs) around. Last year, the company grew its payout 30%, and it has more than doubled the distribution since coming public in 2014. But it still has plenty of growth left in the tank. That's evident by Antero Midstream's recent guidance. The MLP reaffirmed its belief that it can grow the payout another 28% to 30% this year, and by that same clip through 2020. Furthermore, the company now believes it can increase its payout another 20% in both 2021 and 2022. That growth rate suggests that investors who buy today aren't locking in a 4.6% yield but one that's on pace to reach an astounding 12.9% by 2022. That fast-growing payout makes Antero Midstream a top dividend growth stock to consider buying for the long haul. Image source: Getty Images. Drilling down into what's fueling this growth Driving this forecast is the expectation that the company will invest $2.7 billion in … [Read more...] about This Top Dividend Growth Stock Sees No End in Sight
Utilities tend to make excellent income stocks. That's because these companies generate relatively consistent earnings by supplying electricity and natural gas to consumers. With little need for that cash flow, they can return the bulk of it to investors. As a result, most utilities pay an above average dividend. While there are dozens of publicly traded utilities in the U.S. to choose from, the four largest by market cap are NextEra Energy (NYSE: NEE), Duke Energy (NYSE: DUK), Southern Company (NYSE: SO), and Dominion Energy (NYSE: D). Given their large-scale operations, these companies have a lower risk profile than smaller utilities, which is why it makes sense to focus our attention on these four main players to find the best dividend stock in the sector. Image source: Getty Images. Good income now and even more later Despite their large size, all four of these companies expect to grow their earnings and lucrative dividends at or above the industry average of 5% annually … [Read more...] about Which Utility Is the Best Dividend Stock?
If you're expecting massive revenue growth for 2018 among big pharma stocks, think again. Despite hot new drugs for several major drugmakers, many of them also will likely be held back by declining sales for older drugs. Wall Street only expects low single-digit percentage revenue growth next year for most big pharma stocks. That doesn't mean, of course, that these companies won't see solid earnings growth, especially with new corporate tax rates in effect. Still, though, several big pharma stocks should enjoy solid revenue and earnings growth in 2018. Here's why Johnson & Johnson (NYSE: JNJ), AbbVie (NYSE: ABBV), and Celgene (NASDAQ: CELG) appear to be the best big pharma stocks to buy for 2018. Image source: Getty Images. Johnson & Johnson Johnson & Johnson is on track to generate revenue topping $75 billion this year. The consensus among Wall Street analysts is that the healthcare giant will make close to $81 billion in 2018. Achieving that level would give … [Read more...] about 3 Best Big Pharma Stocks to Buy for 2018
When digging into dividend-paying stocks, investors often overlook the gold sector. Since gold mining is capital-intensive, mining companies are usually uninterested in returning cash to shareholders as they must continually reinvest in their businesses, ensuring they remain profitable amid volatile gold prices. But this doesn't mean that dividend-seeking investors should completely forsake companies dealing in the yellow stuff. Unlike miners, which are actually pulling the metal out of the ground, royalty and streaming companies such as Royal Gold (NASDAQ: RGLD) and Franco-Nevada (NYSE: FNV) are basically specialized financiers. Providing up-front payments to miners, they receive, in exchange, the right to purchase the mined metal at a preset price or to receive a percentage of mineral production. Although some gold mining companies represent decent opportunities, the better option for investors is a royalty and streaming company. But which one to choose? Image source: Getty … [Read more...] about Which Gold Company Is the Best Dividend Stock?
Congratulations, long-term investors!If you've been hanging on to your investments over the past eight-plus years since the market bottomed out, you're probably sitting on some handsome returns. Through Wednesday, Oct. 4, 2017, the S&P 500 (SNPINDEX: ^GSPC), Dow Jones Industrial Average (DJINDICES: ^DJI), and Nasdaq Composite (NASDAQINDEX: ^IXIC) were higher by a respective 275%, 246%, and 415% since their March, 9, 2009 lows.Even more impressive, all three indexes are logging fresh all-time record closing highs. That marks more than 40 new all-time highs this year for the Dow, and in excess of 50 new record closing highs for the tech-heavy Nasdaq Composite.As you might imagine, while the march higher in the S&P 500, Dow, and Nasdaq has many investors cheering, it's also created quite the group of skeptics who believe the stock market could be teetering at the edge of a cliff. A number of concerns, such as a possible conflict with North Korea, rising interest … [Read more...] about 5 things to do with the stock market at a new all-time high
Are stocks that pay dividends in trouble now that the Federal Reserve is serious about raising interest rates back to more normal levels? (The Fed hiked rates Wednesday for the third time since December and said another hike is likely this year with three next year.)The answer depends on what kind of stocks you own, according to an analysis by Santa Barbara Asset Management that looked at how dividend-paying stocks have done the past eight times since 1972 the Fed has been in rate-hike mode. The analysis found that stocks in the S&P 500 stock index that not only pay out a cash dividend, but which also increase the payout regularly, do best, posting average 36-month returns of 14% in those past tightening cycles. The next best performer? Dividend payers that didn’t boost payouts, with an average gain of 8%. Companies that pay dividends but cut them fared the worst, posting an average loss of 2%. Non-payers rose 1%.So what explains “dividend growers” better … [Read more...] about What Fed hikes mean for dividend stocks
Dividends don't directly affect the valuation of stock investments, as they aren't included in the calculation of most valuation metrics. However, a company's dividend activity or its dividend yield can certainly affect investor sentiment and move the price of the stock, thereby changing its valuation.First of all, a dividend doesn't have a direct impact on a stock's valuation. Common valuation metrics such as the price-to-earnings (P/E) ratio, price-to-book (P/B) ratio, and most others are calculated in the same way regardless of whether a stock pays a dividend.Having said that, dividends can affect stock prices and valuations in several ways.For example, if a company raises its dividend higher than the market expects, it could be taken as a positive sign and boost the stock's price. Similarly, a dividend cut can be interpreted as a sign of trouble and could result in a depressed valuation.Dividends can also help to create a "price floor" in stocks that otherwise may not exist. For … [Read more...] about Ask a Fool: How do dividends affect stock valuation?