One reason for the recent stock market slide is investors’ disillusionment with reported earnings. Increasingly, stocks that offer nothing more than earnings growth might fall from favor. Instead, investors may turn to dividend-paying stocks because that cash income is real.
Historically, dividends have made a difference. From 1946 though 1991, the Dow Jones Industrials Average rose about 6 percent per year in price but total returns were over 11 percent. The 5 percent annual difference came from dividends.
For the past decade, many companies have avoided dividends so payouts fell from 50 percent to 30 percent of reported earnings. In the future, though, dividends are likely to come back into demand.
What’s more, if bond yields remain low, dividend-paying stocks will become even more attractive to investors.
Therefore, you should search for companies that have records of paying substantial, increasing dividends. Industries that now pay over 3 percent include coal, tobacco, natural gas, non-telecom electric utilities, banks, property-casualty insurers, real estate investment trusts, and some areas of the energy industry.
