Dividend Stocks Could Take Baton from Growth EquitiesSheaff Briefs Editor
“High dividend stocks appeal to many investors living off dividends in retirement because their high yields provide generous income,” simplysafedividends.com observes, almost stating the obvious. Why, exactly, is it that some dividend-paying stocks offer much higher yields than others? There are several possible answers, the authors explain:
- a high yield reflects a company’s mature status (think utilities and telecom companies)
- some companies have unique business structures that require them to distribute cash flow to investors
- some stocks use financial leverage to magnify profits.
Dividend Aristocrats are companies in the Standard & Poor’s 500-stock index that have hiked their dividends every year for at least 25 consecutive years, writes Dan Burrows in Kiplinger.com. In the event of rate hikes, dividend stocks with a history of consistently growing their dividends have historically tended to perform well and exhibit less volatility.
Sheaff Brock Managing Director Dave Gilreath agrees. “Dividend growth stocks could become the leaders,” he predicts, “taking the baton from growth stocks.” Even assuming growth in our economy slows to a sustainable 3%+ rate in 2019, he says, that is still a “golden backdrop” for equities. Why? That growth rate would imply:
- a stable dollar
- low inflation
- low interest rates
- full employment
What that scenario could also imply, Gilreath explains, is “a grand shift from market-leading pure growth stocks to blue-chip dividend growth stocks in 2019.”
Another factor favoring dividend stocks is what U.S. News calls the “flood” of baby boomers entering retirement, especially “after nine years of historically low interest rates that punished conservative investors and savers.”
“If you plan on living for another 10, 20, or 30 years, Treasury yields won’t cut it. But great dividend stocks will give investors both vital characteristics: income and long-term growth.”