(MoneyWatch) Many investors prefer dividend-paying stocks, especially people who take an income, or cash flow, approach to investing -- as opposed to a total return approach, which I believe is the right approach. However, new research from Dimensional Fund Advisors shows that investors who expect dividends to protect them in tough times might be in for a rude awakening (Disclosure: My firm, Buckingham Asset Management, primarily uses DFA funds in constructing client portfolios.) The current era of historically very low yields on safe bonds has attracted many new adherents to the strategy of favoring dividend-paying stocks, especially the stocks of companies with either high or rapidly growing dividends. Why a high dividend strategy is dangerous Should you follow a high dividend strategy? Why a high-dividend strategy is not a good approach Today, we'll take a look at the findings of a March 2013 study, "Global Dividend-Paying Stocks: A Recent History," produced by the research team at … [Read more...] about Why chasing dividends is a mistake
Why stock dividend
(MoneyWatch) As we have discussed many times, the low-interest-rate environment we have been living in for over five years has led many investors toward a strategy of investing in stocks that pay relatively high dividends. For example, the SPDR S&P Dividend ETF (SDY) now has $12 billion in assets under management, and the Vanguard High Dividend Yield ETF (VYM) has about $6 billion in assets under management. Unfortunately, most investors don't stop and ask the questions: Is this a good strategy? Does it add to or subtract from overall returns? Complicating the matter is that the answer depends on how you frame the question. If you ask, "Does a strategy of buying stocks that pay relatively high dividends outperform the market?," the answer is yes. However, if instead you ask, "Is the source of the outperformance the high dividend yield?," the answer is no. Why invest in stocks with a high-dividend yield? Why chasing dividends is a mistake The returns of stocks with less risk? The … [Read more...] about Does a high-dividend strategy help or hurt returns?
Updated at 4:07 p.m. ET NEW YORK Stocks sank Monday as Wall Street worried that a budget fight in Washington could lead to something much worse for the economy -- a failure to raise the nation's borrowing limit. It has become all but certain that the federal government will partially shut down for the first time in 17 years Tuesday because Congress and the White House have failed to reach an agreement to fund federal spending. Global markets rocked by worries in DC and Rome Complete coverage: Budget Showdown But investors are looking beyond that first impasse because any hit the economy and markets take should be temporary if the shutdown is short. The bigger worry is the problem with the debt ceiling, they say. "The concern is government has become so polarized that if they cannot pass (a budget), there's a greater chance that the debt ceiling battle will go to the brink or possibly lead to a default," said Alec Young, global equity strategist with S&P Capital IQ. Treasury … [Read more...] about Stocks slide on government shutdown worries
The economic backbone of the U.S. -- its middle class -- has lost ground over the past decade, thanks to wage stagnation and a greater distribution of wealth going to top earners. An analysis of data by The New York Times finds that after-tax middle-class incomes in Canada have pulled ahead of American middle-class earners. On top of that, the poor in some European countries actually earn more than the poor in America. While the report confirms what many Americans feel every day when they check their bank accounts -- that they're barely treading water -- the eye-opener is how far the U.S. consumer has fallen when compared with other countries. Median per capita income in the U.S. has barely budged since 2000, while Canadians have seen their median income jump 20 percent. "It's remarkable how poorly the middle class has done since the end of the 1990s boom," Lawrence Mishel, the president of the Economic Policy Institute, told CBS MoneyWatch. "We have an economic regime that's not … [Read more...] about Why the U.S. middle class is falling behind Canada’s
This is one of those times that investments have crossed the Rubicon, with Treasury notes paying better than stocks. It’s normally the other way around. If that situation remains, the fear is this could act as a brake on stocks, holding them to low-single-digit growth or even booking losses. The usual pattern, in which the benchmark 10-year Treasury yields less than the S&P 500, occurs because government bonds aren’t as risky as stocks. Treasury paper has the full, taxpayer-backed power of the federal government behind it, and missing a Treasury interest payment is almost unthinkable. So Washington doesn’t have to pay you as much as stock-issuing companies do. Stocks are riskier -- they fell almost 40 percent in the 2008 financial crisis. Plus, they have no obligation to pay dividends to investors, and companies can lower or eliminate them at will. (Yield is determined by dividing bond interest or stock dividends by the securities’ underlying price.) With … [Read more...] about Why rising bond rates may be a threat to stocks