Zacks Equity Research says it has unlocked the key to investing success.
“The holy grail of income investing is thus pretty simple: find fundamentally strong companies with sustainable high dividend yields to obtain a steady and predictable stream of money over the long term,” Zacks
Income investing aims to pick companies that provide a steady stream of income. “When investors think of steady income they commonly think of fixed-income securities such as bonds. However, stocks can also provide a steady income by paying a solid dividend,” Investopedia
“Though the income investing style is almost always overlooked, this could actually be a suitable time for such a strategy as it cushions an investor’s portfolio given the said stocks’ low risk, diversification benefits and ready access to funds. Notably, such stocks provide a steady source of income through solid dividend payouts and there are several benefits associated with the same,” Zacks explains.
“Dividends are a less risky component of total return compared to capital appreciation and dividend stocks are historically less volatile than non-dividend stocks. This could be a vital factor if volatility levels run higher from here.”
Zacks’ 4 picks:
- DuPont Fabros Technology Inc. (DFT) “has been paying dividends consistently since 1999 and has increased its dividend on a continuous basis. Currently offering a dividend yield of 4.7%, this stock has gained over 27% year to date,” Zacks says.
- Mattel Inc. (MAT) “has been a regular dividend payer since 1993. Currently offering a dividend yield of 4.7%, this stock has gained over 19% year to date,” Zacks says.
- Sandy Spring Bancorp Inc. (SASR) “has a strong dividend track record since 1995 and has raised its payout regularly. With a current dividend yield of 3.5%, this stock has gained over 2% year to date.”
- Cracker Barrel Old Country Store Inc. (CBRL) “has been paying dividends since 1993, and has also increased it consistently. With a current dividend yield of 2.9%, this stock has gained nearly 19% year to date.”
To be sure, not all experts have jumped on the income-investing bandwagon.
recently reported that spooked by the early 2016 stock market selloff and sick of low interest rates, income investors have been bidding up dividend stocks at a feverish pace — so much so that these shares now are priced at levels high enough to worry some money managers.
Investors are now paying about $42 for each dollar of dividend they are buying in the Standard & Poor's 500 stock index, while the average since 1935 is roughly $29, according to S&P Dow Jones Indices.
The dividend yield for the Standard & Poor's 500 stock index sits at 2.4 percent — roughly 31 percent below its long-term average.
"People are paying a lot" to get the dividend, said Richard Bernstein, chief executive and chief investment officer of New York-based Richard Bernstein Advisors, which manages $3 billion in assets. "To think it's safe is naive," he said.
Mutual fund managers started selling traditional dividend payers in the utilities and consumer staples sectors in February and early March, according to the most recent survey by Bank of America's Merrill Lynch.
(Newsmax wire services contributed to this report).
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