As an investor, you always want to get the biggest “bang for your buck.” And that’s why you will want to consider investing in stocks that have consistently paid dividends.
When you invest in dividend-paying stocks, you receive the income, of course, but you also receive something else: growth potential. Many companies that pay dividends have also achieved strong growth over the years, so you may earn some profits when you eventually sell your shares, though there are no guarantees.
And this year is shaping up to be a good one for dividends. In fact, companies listed in the S & P 500 are on track to pay out more than $252 billion, a record amount, in 2012, according to data compiled from Standard & Poor’s. The projected 2012 dividend payouts are up from $240.6 billion in 2011 and $205 billion in 2010.
What’s behind this jump in dividends? Over the past several years, many businesses have reduced costs and boosted productivity, thereby improving their profitability and earnings. So, with a lot of cash on hand, these businesses are paying higher dividends than last year, or, in some cases, restoring dividends that they eliminated during the recession.
Consequently, you’ll want to be on the lookout for dividend-paying stocks, assuming they are appropriate for your needs. And keep in mind that, in addition to providing income and growth potential, dividend payers offer other benefits, too:
• Quality — Companies that consistently pay dividends tend to be well-run businesses that seek to reward their investors. In other words, they are quality companies. And as an investor yourself, you know that quality is an important attribute in your invest-
ment choices.
• Inflation hedge — Many companies have increased their dividends year after year. By investing in these stocks, you can attain rising income, which can help you stay ahead of inflation. This ability may prove especially beneficial during your retirement years. (Keep in mind, though, that even long-time dividend payers can cut dividends when they choose.)
• Increased share ownership — If you don’t really need the income, you don’t have to cash in your dividends — you can reinvest them. By reinvesting dividends over a number of years, you can greatly increase the amount of shares you own — and the more shares you have, the better off you will be when the per-share price goes up. If the projections of a record dividend year are accurate, your reinvested dividends can buy even more shares in 2012.
• Reduced volatility — Stock prices will always go up and down. But dividend-paying stocks tend to be less volatile than those stocks that don’t pay dividends. This means that, in “bear” markets, dividend payers will tend to lose less value than non-dividend payers.
As you can see, investing in dividend-paying stocks may help you meet several of your investment goals: income, growth, quality, wealth accumulation and stability. In 2012, you have a great opportunity to add these dividend payers to your portfolio. And when opportunity knocks, you may want to answer.
This article is provided by Pamela Carty, Accredited Wealth Manager, a Financial Advisor at RBC Wealth Management in Bend, Oregon, and was prepared by or in cooperation with RBC Wealth Management. The information included in this article is not intended to be used as the primary basis for making investment decisions nor should it be construed as a recommendation to buy or sell any specific security. RBC Wealth Management does not endorse this organization or publication. Consult your investment professional for additional information and guidance. RBC Wealth Management does not provide tax or legal advice.
RBC Wealth Management, a division of RBC Capital Markets LLC, Member NYSE/FINRA/SIPC.
