If you're looking for yield, it may be a good time to look at dividend paying stocks. (Edited) [View all]

[A HERETIC I AM]

Last edited Thu Dec 3, 2015, 08:29 AM - Edit history (3)

As most who pay attention know, CD's and other fixed income investments are at historically low yields these days. There are however, quite a few Large-Cap, S&P 500 stocks currently yielding over 3.5%.

While investing in individual stocks can be risky for the average or casual investor, sticking with the classic "Blue Chip" style companies has historically been a good investment, and right now their dividend yields are rather attractive.

A perfect example is Proctor and Gamble. Their dividend yield is currently 3.5% which is WAY above what one can get out of a 12 month CD, not to mention P&G has NEVER reduced their dividend. In fact, they have a long and respectable history of consistently RAISING their dividend and paying it regularly.

I can not emphasize enough that I do not and will not recommend a specific stock or investment on this group. Having said that, It must be said and should be of interest to the readers here, that "Chasing Yield" is a double edged sword.

Allow me to point you to an investment strategy invented by my former firm - AG Edwards. The program was and still is (Taken over by Wells Fargo Advisors, who, after Wachovia bought AGE, ended up owning the firm) used by the analysts and promoted to investors with admirable results.

DSIP which stands for "Diversified Stock Income Plan". The link is to a Wells Fargo Advisors .pdf and I want to emphasize that I am NOT, in ANY WAY, suggesting one do business with that firm. If it suits your needs and goals to do so, fair enough, but I am not shilling for my former employer here. I am merely attempting to point interested parties to a strategy that is not often discussed.

As you will read in the above linked article, the idea of the DSIP concept is to focus on companies that have a HISTORY of consistently RAISING their dividends, thus offering a portfolio with the potential for increasing returns over time that includes significant quarterly or biannual income.

Most of the guidance re: individual stock portfolios I received when I was with Edwards was that Brokers were encouraged to advise their clients to purchase an entire portfolio - 20 to 25 positions, BUT NO MORE (because more than that and you begin to form your own Mutual Fund, and that is difficult as all hell to properly manage), across the various sectors. This is not always practical for investors with smaller available balances, but it is advice worth heeding. It is all about mitigating risk as much as possible and diversification is one of the most effective ways of doing this.

Since the DSIP program is proprietary to Wells Fargo these days, finding an actual list of the current stocks is difficult on their website, but alas, a quick Google search revealed the following document from 2013;

http://www.themoellergroup.net/files/61402/RL-DSIP-Quarterly-Review-APR-2013.pdf

Scroll down to page 6 for the beginning of the list. It is important to remember that despite the best research possible, no matter who conducts it, there is no guarantee that a specific company will remain on the list. Many have come and gone over the years, as the key to inclusion is a history of RAISING dividends. If a company lowers their dividend, even for a single quarter, it is my understanding they are dropped from the list.

Once again, and I can NOT emphasize this enough, what I have written is NOT to be considered a recommendation to buy a specific security, nor is it an endorsement of Wells or a solicitation on behalf of the DSIP program. I merely want you readers to be aware that this research is available, that this program and investment style exists and has merit.

I can not encourage you enough to do your own research and make sure you FULLY understand the risks involved before making ANY investment.

May all your trades be net gains.


Edit;

I feel I should expand on the point I made in the 4th paragraph above where I said...

It must be said and should be of interest to the readers here, that "Chasing Yield" is a double edged sword.

The term "Chasing Yield" is one that I understand to encompass a modicum of risk that needs to be properly understood. One way to describe it would be in reference to bond yields. If a company issues a long bond that had at it's offering a high ("A" or better) rating and that company fell on hard times, the price of the company stock as well as their bonds tends to fall. When bond prices fall their yield rises, so simply searching for a 7% yield, as an example, when the going rate is 4% means that the bond has been bid into dangerously low territory and is considered by traders as being at risk for default.

The same must be considered when looking at high yielding dividend rates. The primary difference is that most bonds have a fixed "Coupon Rate" or payment till they mature whereas a stock does not have a fixed dividend rate/payment at all. A company is free to raise, lower or even eliminate a dividend at their will (Ford Motor Company is a perfect example of a firm that has done such things over the years), so if they come into financial difficulty and consider paying a dividend an extravagance, they can suspend one or more dividend payments.

To further clarify, consider that XYZ company trades for $10/share and they pay a $1.00 annual dividend. Their yield is then 10%. If XYZ is bid to $20 and they don't increase the dividend, the yield is now 5%. Conversely, if the stock falls to $5 per share, the yield is now 20% given that same one dollar dividend payment.

Looking for that higher dividend yield on stocks then requires one look at the financials a bit more thoroughly in order to have proper confidence the company can survive market headwinds and is therefore unlikely to reduce or suspend such payments.

That is the primary reason I suggest sticking with only the so-called "Blue Chips" for the purposes of the concept in this OP. Solid, established firms that make products you are familiar with and that get used regardless of the up and down cycles inherent in our economy.

I apologize for leaving such a gaping hole in my original description!