The Allure of Dividends

I love the safety of cash — especially in crazy times like these, when it’s hard to determine whether the circus in Greece or the crash in China will have any noticeable impact on us here in the U.S.


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But I love dividends even more.

That’s why I’m drawing down my cash reserves, ever so gently, to pick up a few bargain-priced stocks. If a company will pay me double, triple, even four or five times what I can earn on the highest-yielding bank money market account, I’ll take the dividend — even if it means swallowing a certain amount of stock market volatility along the way.

Obviously, I wouldn’t be talking in these terms if I thought the Dow Jones Industrial Average was headed over a cliff. However, the odds of such a catastrophe continue to look fairly low.

Despite the roller-coaster trading of the past few sessions, the CBOE Volatility Index, or VIX, has remained below the crucial 20-22 zone where dangerous market slides often begin.

Moreover, the number of New York Stock Exchange stocks touching new 52-week lows actually shrank amid last Wednesday’s big selloff — to 222, versus 312 last Tuesday (and 343 on June 29, when the S&P 500 first broke below 2,060). A diminishing cluster of new lows suggests that more and more stocks are finding their own bottoms.

So yes, I’m buying, and I encourage you to do the same, emphasizing stocks that pump out a generous income here and now.

Dividend Stocks to Put on Your Radar

That description includes our utilities, such as electricity supplier Southern Company (SO, 5% yield) in the main model portfolio, as well as one of our holdings in the Incredible Dividend Machine portfolio, which you can gain access to by subscribing here. I expect both Southern and our IDM holding to boost their dividends at least as quickly as interest rates rise over the coming decade.

The cliché that “you shouldn’t buy utilities because rates are going up” doesn’t apply.

Meanwhile, actions are speaking louder than words in the pipeline partnership arena. Think MLPs are in a cash crunch? Enterprise Products Partners’ (EPD, 4.9% yield) new payout is 5.6% better than it was in the year-ago period, and Plains All-American Pipeline’s (PAA, 6.35% yield) distribution is better by a lush 7.8%. If these infrastructure operators were experiencing a cash-flow crunch, their boards of directors wouldn’t be voting such liberal payout hikes.

P.S.: I’m pleased with the terms Procter & Gamble (PG, 3.2% yield) has hammered out for the sale of its beauty business to Coty (COTY). Thanks in part to the transaction, CEO A.G. Lafley says PG will unleash $70 billion for dividends and stock buybacks through fiscal 2019.

Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk value approach has won seven Best Financial Advisory awards from the Newsletter and Electronic Publishers Foundation.

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