Christmas 'Presents'

Christmas is over but investors, including most of my clients, received a few presents recently.  I'm referring to dividend boosts.  General Electric raised its quarterly dividend to 22 cents and Pfizer raised its to 26 cents.  AT&T, the highest yielding stock in the Dow, just raised its dividend for the 29th consecutive year.  MDU Resources, one of my favorite stocks, increased its dividend for the 23rd year.  There are many more examples.  

 

Historically, dividends account for 43 percent of the stock market's long-term annual return of around 10 percent.  With stocks up close to 30 percent this year, it's easy to make a case that dividends will become a more important component in total return as we move forward.

 

Dividend paying stocks are easy to own.  Most are from companies that are financially stable and mature, and they are typically less volatile that other stocks.  Shareholders can either enjoy the periodic dividends or have them reinvested. 

 

Investors can own their favorite dividend-paying companies or buy a dividend ETF.  Here are two of the latter to consider:  The SPDR S&P Dividend ETF (SDY) holds 60 companies from the S&P 1500 that have raised their dividends annually for at least 20 years.  Its expense ratio is 0.35%.  An alternative is ProShares S&P 500 Aristocrat (NOBL), which holds S&P 500 stocks that have increased dividends annually for at least 25 years.

 

With few exceptions all of my stock holdings have above-average dividend yields and nearly all raise their  payouts year after year.  Dividends provide more than just walking around money.  Over time dividends account for close to half of the market's total return.  When you own several of these companies, you'll be receiving dividend "presents" again and again.

— David Vomund is an Incline Village-based fee-only money manager.  Information is found at www.ETFportfolios.net or by calling 775-832-8555.  Clients hold the positions mentioned in this article.  Past performance does not guarantee future results.  Consult your financial advisor before purchasing any security.