Investing in stocks that pay dividends certainly has its advantages. In an uncertain economic climate, stocks with a consistent history of dividends offer investors something steady to which to anchor their portfolio. This is because with these types of income stocks, the downside protection is generally better when compared to growth stocks - these stocks are typically not as unpredictable as growth stocks when the going gets rough.
IN PICTURES: 5 "New" Rules For Safe Investing
Historically, utility companies and large conglomerates, such as General Electric (NYSE:GE), for example, were considered the staples of any good income portfolio. However, nearly any large blue chip company that has a solid history of growing earnings and dividends can be a good addition to an income portfolio.
Be Careful of High Yields
It is also prudent to note that, when looking for dividend stocks, investors should be wary of stocks with abnormally high dividend yields. These type of yields are almost never sustainable, and the risk of the stock taking a nosedive if the company reduces its dividend amount unnecessarily endangers your investment. Stick to what has worked historically, and try to resist the temptation of double digit yields.
With that said, here are some ideas of stocks with a good current and projected dividend yield that also have a strong history of growing earnings and dividends:
|Johnson & Johnson||JNJ||3.44%|
|Procter & Gamble||PG||3.03%|
|data as of December 15, 2010|
One of the more intriguing companies on the list, in terms of business consistency, is Abbott Laboratories. At the beginning of the decade, Abbott paid a dividend of 74 cents on earnings per share of $1.78. Slowly and steadily through 10 years, Abbott grew the dividend to $1.68 on earnings per share of $3.05. This works out to a 10-year average growth rate in earnings per share of just over 12%, a very impressive track record. Currently, the stock trades with a P/E valuation of about 15.7, slightly above the industry average, but significantly below Abbott's five-year P/E average of 23.7. This may be one of the more attractive companies on the list to consider for your portfolio and do further research on.
The Bottom Line
With the current unattractive yields in the bond market, the natural transition for income investors is towards equities. And in order to maintain a degree of consistency and safety, investors should consider stocks with a strong history of dividend payments and growth. (To learn more about the benefits of dividends, check out Dividends Still Look Good After All These Years.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
Stock AnalysisHere are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
InvestingThe further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
Fundamental AnalysisOptions market trading data can provide important insights about the direction of stocks and the overall market. Here’s how to track it.
Stock AnalysisCan these two oil stocks buck the trend?
Investing NewsAlcoa plans to split into two companies. Is this a bullish catalyst for investors?
Stock AnalysisIf you want to buck the bear market trend by going long on consumer stocks, these three might be your best bets.
Investing NewsA rate hike would certainly alter the investment scene, but would it be for the better or worse?
Investing NewsWith market volatility high, you may think it is time to run for corporate bonds instead of stocks. Before you do take a deeper look into which is better.
Mutual Funds & ETFsInstead of selling your stocks to get gains, consider a short selling strategy, specifically one that uses short ETFs that help manage the risk.
Investing BasicsDiversifying with international stocks can benefit most portfolios, but beware of country risk.
When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>