Will Dividend Stock Investors Get their Fair Share in 2010?
Dividend investors had a rough and tumble 2009, but as 2010 grabs momentum dividend investors may be back in business. Yields on CDs, bonds and other fixed income investments have created a new desire to hold dividend yielding stocks, many of which produce as much, if not more, income than bonds and CDs.
How Bonds and Stocks Mingle
One beauty of dividend stocks is that unlike bonds, they are rarely traded primarily for dividends. Stocks have a greater opportunity to rise, and also fall, but dividend yields are generally little more than an afterthought. After all, stock dividends come second to capital appreciation. No investor would want to trade a stock that’s 20% undervalued but generates 4% in dividends each year for a stock that is soon to trade up 20% and only generates 3.5% a year. Capital appreciation comes first.
However bonds are an entirely different ball game. Bond interest rates only go up when the bond goes down, and many traders and analysts are forecasting huge losses in the bond market as rates creep up. So what’s that mean for investors? Well, for one, they may be better off trading in their bonds for high yielding stocks. More volume, more money. ChaChing?
Last Year Sucked for Dividends
Let’s be honest, last year absolutely sucked for investors wanting hefty dividends. S&P 500 stocks paid just $196 billion in dividends in 2009 after paying out $248 billion in 2008, a decline of more than $52 billion. But what’s even worse is that the highest paying dividend stocks throughout the 2000s were absolutely demolished in 2008. Financial stocks led the charge in the real estate market, borrowing at 1% lending at 5% and paying record dividends to investors. That’s all fine and dandy until you hit a snag like a financial crisis and the bottom drops out.
Here’s to a better 2010
I can feel it already, how about you? With the financial crisis behind us and only a few hurdles to jump in the mortgage sector, 2010 will prove to be much better for investors than 2009, at least when it comes to dividends. Investors would be best in ETFs like The WisdomTree International SmallCap Dividend Fund (DLS) which despite paying out little in the way of dividends, trades for a nice PE of 13 and has exposure to what is sure to be the best performing stocks in 2010, international and small cap.
