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Right Now, Dividends Are King

 January 11, 2012 01:23 PM
 


[Related -Boost Your Dividend Yield]

Having benefited for four decades by preceding the baby boomers by two years, I continue to anticipate their huge impact on the economy as this group reaches retirement age. With interest rates on short term treasuries providing so little income, it is logical to expect boomers to seek income from other sources than treasuries.

I believe the search for relatively secure income was a factor in the performance of the stock market in 2011.  For example, utility stocks were one of the best performing sectors in 2011.  Utility stocks are well known for providing a good yield with subdued volatility.  As for volatility, I suspect the gyrations we experienced in 2011 with the S&P 500 crossing its 200-day moving average several times, has created an appetite among the boomers for reduced volatility in their investments.

[Related -Gold hasn’t lost its allure in my portfolio]

The stock market has provided below normal returns since 2007, resulting in the perception by many investors that ignoring dividends is unwise.  A further confirmation of the growing importance of dividends is the superior performance of the Dow Jones Industrial Average over the S&P 500 and the Nasdaq in 2011  The dividend yield from Dow Industrial stocks is greater than the yield provided by the Nasdaq or the S&P 500. U.S. large capitalization stocks are laden with cash and equivalents, providing the wherewithal to increase dividend payouts in 2011.

I expect the trend toward quality dividend paying blue chip stocks to continue in 2012, resulting in the possibility that low risk portfolios will outperform portfolios that undertake more risk.

It's broadly accepted that volatility is a proxy for measuring risk.


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