Well-established, dividend-paying companies have traditionally been referred to as widow-and-orphan stocks, because they provided their stockholders with a reliable dividend stream that could be counted on as a steady income. But while they may be given such a label, the fact of the matter is that many types of investors can probably improve their portfolios by including companies that make consistent dividend payments to shareholders. (To learn more about the benefits of dividends, check out Dividends Still Look Good After All These Years.)
Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers.
Advantages of Dividends
For starters, the obvious benefit of regular incoming cash received from dividend payouts should not be overlooked. Periodic dividend receipts not only provide stability to a portfolio's annual rate of return, but also provide emotional support and peace of mind for the individual investor. As the market turbulence of the past several years has illustrated, stocks can be prone to drastic short-term changes in value. When prices do happen to drop, dividend-paying stocks can often keep a portfolio on track - and keep an investor from succumbing to panic.
SEE: How Dividends Work For Investors.
Consistency Is Key
While a portfolio constructed of stocks paying sufficient dividend yields will likely experience less price volatility than the overall market, it is important to note that this benefit exists only as long as the dividends are being paid. If, for whatever reason, a company decides to decrease or stop its dividend payments to shareholders, its common shares no longer carry the advantages of a dividend-paying stock.
SEE: Your Dividend Payout: Can You Count On It?
Thus, it is important for the individual investor to not only look for stocks that are paying high dividend yields now, but to also to attempt to select those that are likely to continue to consistently pay dividends for the foreseeable future. With that in mind, here are four stocks that have both a relatively high current dividend yield:
|Company||Market Cap||Dividend Yield (TTM)|
|Eli Lilly & Co.(NYSE:LLY)||45.85B||4.70%|
|National Grid plc. (NYSE:NGG)||38.5B||4.10%|
The Bottom Line
While dividends aren't the whole story when considering whether to buy a stock, a relatively high current dividend yield certainly increases a stock's attractiveness. Provided the dividend amounts remain stable and are not reduced in the future, they can be a rare source of support for the individual investor in an otherwise turbulent market. |
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!