(Photo courtesy of Kevin Stryke)
Dividend investing is one of the most well-regarded strategies on Wall Street. Watch the financial networks for a day and inevitably, someone will come on the TV touting a dividend strategy.
What is a dividend strategy?
It can take a few variations but basically it is investing in companies that pay a dividend and using the dividends to reinvest – also called “growth & income” investing. One specific “technique” is to buy the 10 highest yielding Dow 30 stocks on January 1st of each year and then re-balance each year – an idea known as the “Dogs of the Dow” theory; however, notoriety has caused this technique’s returns to drag in some years. The idea is that historically, a portion of investment returns for stockholders would come from growth in the share price, and a portion would come from dividends. This idea became a bit lost in the go-go 1990’s when due to high dividend tax rates, companies decided to focus on “share buybacks” as a way to ‘return’ capital to investors.
After the market collapsed and many of these high fliers went out of business, dividends came back in vogue, especially as tax rates were cut on them, making it much more attractive to get dividends. As I write this, I can find that the dividends on many well-known American stocks are higher than the interest in 5 year bonds and CD’s.
Is dividend investing the right idea for you? it all depends on your goals of course and how it would fit into you comprehensive financial plan. It can be helpful, in times when the overall stock market hasn’t moved above a certain level in 10 years, to collect some income. And for many people, dividends have been the difference between negative and positive portfolio returns.
If you have any questions regarding dividend investing, feel free to contact us either by phone – 781.393.0021 or through a Quick Contact – we’d enjoy talking to you and have a network of professionals that might be able to help.
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