Posts Tagged ‘dividends’

Flipping Positions, Dividends Paying Out More Than Bonds

Wednesday, September 8th, 2010

For the first time in 15 years, a usually-small bonus payout is earning investors more money than long-term corporate bonds!

  • Dividend-paying stocks are handing a higher return percentage to investors than corporate bonds issued by the same companies, in part because in the short-term, companies are pretty flush with cash, but nobody knows what the long term holds.
  • The recession drove down the prices of most S&P 500 companies, but at the same time their profits have soared. This means their stock prices are relatively cheap, considering the health of the companies.
  • Bond yields have been low since the start of the recession for many reasons, including the Fed’s rock-bottom interest rate and uncertainty about the future of the economy.

Facts & Figures

  • Interest on 10-year Treasury bonds was 2.42% last month
  • Kraft dividends are up to 3.82% – that’s 0.18% higher than their bonds expiring in 2018

Best Quote

“The economy is slowing down, but productivity has been so great in this country and companies have been able to make good profits,” said Duessel, the Pittsburgh-based equity market strategist at Federated. “Companies that would have cut their dividends already did so. It’s an unusual time where, yes, their profits are good, their cash is good, they can afford to pay more in dividends.” – Linda Duessel, Equity Market Strategist for Federated Investors

Yield is…

Tuesday, August 18th, 2009

Yield is the rate of return on an investment, usually expressed as a percentage. It is the amount of money returned to investors on their investments.

Why do some stocks pay dividends while others don’t?

Monday, August 10th, 2009

A dividend is something “extra” that you get for being an investor or shareholder. It comes from additional money a company has after its normal profits are tallied. When a company makes these extra profits, it has two choices: pay dividends to its investors or reinvest it back into the company.

If a company is young and on the move, it usually chooses to reinvest these profits. That’s because it still has a lot of potential to grow and grow quickly. These extra funds would help it do so.

On the other hand, when a company has already built a reputation, it typically uses the profits to pay dividends to its shareholders instead. Investors often interpret the choice to offer dividends as a sign of a company’s confidence in its business. Other investors specifically invest in dividend yielding stocks as a strategy. Even though the company may not be growing by leaps and bounds, it can still deliver top-notch value to its investors, hence, the dividend. For instance, a long-standing company like Johnson & Johnson (JNJ) might pay a dividend while a faster moving company like Google might choose to reinvest those funds.

Can a bad stock be a good stock?

Friday, July 17th, 2009

One of the most basic principles of investing is that you want to buy stocks you think will achieve significant growth – you pay a certain price for them now in the hope that they will soon be worth much more. When you end up with stocks that aren’t increasing in value, you usually sell them. But is it ever worth it to hang onto a stock that isn’t growing rapidly?

An alternate way to profit from your stocks involves earning dividends, or payments a corporation makes to its shareholders out of the company’s quarterly earnings. Companies don’t have to pay dividends, so those that choose to do so are trying to attract shareholders. These companies’ growth rates have usually leveled off, and they don’t think they’ll benefit from trying to increase their growth any further, so they have to provide their investors with something else of value. As long as the company is stable – that is, as long as it’s not rapidly decreasing in value – you can still earn money from dividends, even if your stock isn’t growing as quickly as you’d like. So there are times when a stock that’s considered bad by conventional standards can actually turn you a profit through less conventional means.