It’s safe to say 2013 was the year of dividend destruction.
Sure, that may sound odd considering 2013 was a record year in terms of dollars paid out. The number of dividend stocks raising their payouts hit the highest levels in over 20 years, and dividend cuts were almost unheard of. Plus, considering American dividend stocks still sport a historically low payout ratio of 32%, 2014 will almost certainly see income investors rewarded with more cash than ever.
But looking at the price returns of several solid dividend stocks, it’s clear that Mr. Market is not rewarding this generosity. Non-dividend-paying stocks have outperformed their dividend-paying peers by a wide margin in 2013, and — fearing the effects of Fed tapering — investors have wholesale dumped some of the safest, most dependable, most bond-like stocks.
Dividend stocks should enjoy a rally in 2014 as the market makes sense of the Fed’s tapering plans. As I wrote recently, I expect that, counterintuitively, tapering will actually cause bond yields to fall. After six months of uncertainty as to Fed’s intentions, the bond market priced in the worst. Plus, foreign investors — led by Japanese institutional investors — are aggressively buying U.S. Treasuries, and overall bond demand remains high even while the growth in new supply continues to shrink.
With all this in mind, let’s take a look at some of my favorite dividend stocks that are trading at beaten-down prices. These are prices that I do not expect us to see again for a very long time, if ever … and these dividend stocks are some of the best stocks you could snatch up now.