Friday, July 10, 2009
Guest Editorial by Louis Basenese, Advisory Panelist, Investment U
Editor’s Note: Today, Investment U’s Louis Basenese gives a rundown on the benefits of having dividend-yielding stocks in your portfolio - and provides six tips for ensuring that you pick the best ones. He also gives two dividend stocks that are good value today. This is the latest guest essay from our colleagues at Investment U, as we broaden our market coverage.
Martin Denholm, Managing Editor, Smart Profits Report
What Is The “Bond King” Recommending?
I just finished reading Bill Gross’ latest market commentary. It’s something I do every month. And I recommend you do the same.
Why?
Forget that it’s always entertaining, informative and often loaded with unconventional investment perspectives. Read it because the man controls a boatload of money.
At last check, his PIMCO Total Return Fund - the largest mutual fund in the world - boasted $159 billion under management.
With so much at stake, he can’t make investment recommendations flippantly. They require deep thought… and a track record of accuracy. Otherwise, investors wouldn’t keep entrusting him with their money.
Bill Gross is the “Bond King.” Or, as The New York Times likes to say, “The nation’s most prominent bond investor.”
So what’s he recommending now?
Bonds, of course. Not doing so would be sacrilegious… and detrimental to his business.
But Gross also likes “stable dividend-paying equities.”
The Benefits Of High-Yield Investments
Here’s my rub, though. Gross is ambiguous. A “stable” dividend-paying stock is not self-evident. And investing in unstable dividend-paying stocks can lead to disastrous results (i.e. - a stock that cuts or cancels its dividend AND drops in price).
So let me provide you with a six-step screening process to easily identify stable dividend-paying stocks.
Countless studies demonstrate that dividend-paying stocks outperform non-payers by a wide margin. For example…
- From 1972 to 2006 dividend-paying stocks returned an average of 10% annually, versus 4% for non-dividend payers, according to Ned Davis Research.
- Going back to 1926, other studies confirm almost half of the S&P 500’s return was due to the dividends paid by the companies in the index.
So I’ll take Bill Gross’ recommendation one step further. Forget now. Dividend-paying stocks always deserve a place in your portfolio.
