What Makes Dividend Investments So Attractive Right Now
By Christopher Fitch
Generating income as part of one's investment portfolio is nothing new. While many investors have always recommended "getting paid" for investing while they wait for the growth to happen, the concept has become a lot more popular recently as investors struggle with historically low interest rates on traditional income producing investments likes bonds and term deposits. The natural solution has therefore been to seek income in the form of dividend payments from common equities.
There are several different reasons why investing dividend paying common equities is a very wise decision at this point in history. Notwithstanding the latest market correction that saw the broader market reach levels last seen in 2002, several indicators point to there being tremendous opportunities in common equities, especially dividend paying common equities. Here are the most important at this time:
1. Dividend paying corporations are actually increasing their dividends. What better time to invest in a security that pays dividends than now as these corporations are deciding to give their shareholders a raise? Some noteworthy securities with recent dividend increases are Microsoft with a dividend increase of 23% (when was the last time you saw a pay increase of this magnitude?), General Electric and Cisco recently committed to targeting a 1% to 2% dividend yield on their shares. Not bad...
2. Business activity has been accelerating domestically, as reported by Bloomberg. This is great news for the largest segment of the market, which benefits from business spending. This sign signals to investors that companies are optimistic enough about the economy to start investing in growth once again. With this kind of activity on the rise, it becomes more likely that dividend payments will continue to be made on a regular basis, reducing the risk to the investor.
3. With low rates expected to go higher and the dividend yield at or above the 30 year government bond rate on more than 60 different securities that are part of the S&P 500, what a great time for investors to get the same rate of interest they would get from a bond but with the added potential for capital growth and appreciation? Of course, as rates on bonds increase (and their market value decreases) the theory is that securities prices will increase and the yield on the security investment will decrease. That makes for a small window of opportunity for investors looking to get in while prices are still attractive.
These are just three basic reasons why now is a great time to look at buying dividend securities as a way to enjoy steady dividend income as well as participate in some of the capital appreciation that economic growth is known to produce for equity investments.
--> Find out what makes Dividend Funds so appealing at the Mutual Fund Site.
With more than 17 years of financial services experience, Chris has recently contributed an article about Vanguard Wellesley Income Fund to the MutualFundSite.org.