Stocks for Dividends..or Shelter
www.waltonsun.com
July 31, 2010
?If I don?t get some shelter, oh yeah, I?m gonna fade away? ? Mick Jagger and Keith Richards, ?Gimme Shelter?
Undoubtedly, Gimme Shelter is a classic rockand-roll tune if only for the opening guitar riff. Humanity owes a debt of gratitude to Mick Jagger and Keith Richards for that record but you haven?t lived until you?ve heard Patti Smith?s cover. Sorry guys, she blows the door off.
Before The Rolling Stones hit the big time, Jagger was a student at the prestigious London School of Economics. Given the Stones business success, he obviously paid attention.
Mutual funds that own dividend-paying stocks will give investors shelter so their assets won?t fade away. This is not a recommendation to trot out and buy stocks ? consult with a professional. Rather the 2-to-4 percentincomestreamfrom dividends will provide cash for living expenses and/or higher longterm returns. Most importantly, according to Ned Davis Research ?we are at the point in the (economic) cycle where dividend payers tend to outperform nonpayers.? Regardless of where we are in the recovery, from 1972 to May 2010 companies that consistently raised their dividend had an average annualized return of 9.3 percent. Over that same timeframe, non-dividend paying companies chalked up a miniscule 1.4 percent return. While dividend payers not consistently hiking their dividend saw returns of 7.2 percent.
In this low-interest environment, the best way to own dividend-paying stocks is to buy low cost exchange traded funds or passively managed mutual funds. You get diversification, income and the promise of higher share prices.
One ETF we have recommended for years is iShares Dow Jones Select Dividend Index, currently yielding 3.94 percent. Also, consider SPDR S&P 500 Dividend sporting a 3.51 percent yield. While both of these are broadly diversified across 10 market sectors, DVY is more heavily weighted toward utilities than consumer stocks. The converse is true for SDY. Words of warning: Prior to the 2008 market meltdown, over half of the stocks in both ETFs were dividend paying financial companies. Today, with the elimination or reduction in dividends in financial companies, only about 10 percent of the holdings are in the financial sector.
Focus on ETFs that have high daily trading volume. For instance, DVY and SDY, trade around 500,000 shares daily. Other liquid ETFs are Vanguard High Yield Dividend and Vanguard Dividend Appreciation, yielding in 3.07 percent and 2.15 percent respectively. The difference is not in brains but in what sector of the market they are tracking. VIG?s goal is to focus on 50 companies with 10 straight years of dividend increases. VYM, on the other hand, aims more for high current dividends.
Owning individual stocks that pay high dividends is an option. However, the diversification advantage of ETFs or mutual funds like DFA Large Cap Value cannot be understated. We have all heard about how the first 10 years of the 21st century was the lost decade for stocks since the S&P 500 had a negative .93 percent annual return from January 2000 to December 2009. Comparatively DFA Large Cap Value (DFLVX), which focuses on companies with dividends, returned over 4 percent annually.
Get eggs from chickens, milk from cows and dividends from stocks.
Buz Livingston is a certified financial planner. Contact him at 850-267-1068 or at buz@LivingstonFi? nancial.net? .
JUST PLAIN TALK
Buz Livingston
www.waltonsun.com
July 31, 2010
?If I don?t get some shelter, oh yeah, I?m gonna fade away? ? Mick Jagger and Keith Richards, ?Gimme Shelter?
Undoubtedly, Gimme Shelter is a classic rockand-roll tune if only for the opening guitar riff. Humanity owes a debt of gratitude to Mick Jagger and Keith Richards for that record but you haven?t lived until you?ve heard Patti Smith?s cover. Sorry guys, she blows the door off.
Before The Rolling Stones hit the big time, Jagger was a student at the prestigious London School of Economics. Given the Stones business success, he obviously paid attention.
Mutual funds that own dividend-paying stocks will give investors shelter so their assets won?t fade away. This is not a recommendation to trot out and buy stocks ? consult with a professional. Rather the 2-to-4 percentincomestreamfrom dividends will provide cash for living expenses and/or higher longterm returns. Most importantly, according to Ned Davis Research ?we are at the point in the (economic) cycle where dividend payers tend to outperform nonpayers.? Regardless of where we are in the recovery, from 1972 to May 2010 companies that consistently raised their dividend had an average annualized return of 9.3 percent. Over that same timeframe, non-dividend paying companies chalked up a miniscule 1.4 percent return. While dividend payers not consistently hiking their dividend saw returns of 7.2 percent.
In this low-interest environment, the best way to own dividend-paying stocks is to buy low cost exchange traded funds or passively managed mutual funds. You get diversification, income and the promise of higher share prices.
One ETF we have recommended for years is iShares Dow Jones Select Dividend Index, currently yielding 3.94 percent. Also, consider SPDR S&P 500 Dividend sporting a 3.51 percent yield. While both of these are broadly diversified across 10 market sectors, DVY is more heavily weighted toward utilities than consumer stocks. The converse is true for SDY. Words of warning: Prior to the 2008 market meltdown, over half of the stocks in both ETFs were dividend paying financial companies. Today, with the elimination or reduction in dividends in financial companies, only about 10 percent of the holdings are in the financial sector.
Focus on ETFs that have high daily trading volume. For instance, DVY and SDY, trade around 500,000 shares daily. Other liquid ETFs are Vanguard High Yield Dividend and Vanguard Dividend Appreciation, yielding in 3.07 percent and 2.15 percent respectively. The difference is not in brains but in what sector of the market they are tracking. VIG?s goal is to focus on 50 companies with 10 straight years of dividend increases. VYM, on the other hand, aims more for high current dividends.
Owning individual stocks that pay high dividends is an option. However, the diversification advantage of ETFs or mutual funds like DFA Large Cap Value cannot be understated. We have all heard about how the first 10 years of the 21st century was the lost decade for stocks since the S&P 500 had a negative .93 percent annual return from January 2000 to December 2009. Comparatively DFA Large Cap Value (DFLVX), which focuses on companies with dividends, returned over 4 percent annually.
Get eggs from chickens, milk from cows and dividends from stocks.
Buz Livingston is a certified financial planner. Contact him at 850-267-1068 or at buz@LivingstonFi? nancial.net? .
JUST PLAIN TALK
Buz Livingston
