Wednesday, August 10, 2011

Now is the perfect time buy dividend stocks

Over the past week, stock markets kept falling around the world. Investors, scared that the economy is about to fall into another recession, fled stocks and went for safer instruments such as US Treasury bonds. Yet, while dividend stock prices fell in sympathy with the broader market, the drops were not as severe. The reason behind this is the fact that some quality dividend stocks are safer than your average stock. In this article I will explain why the market dip has created a perfect opportunity for dividend investors.

Many prominent dividend growth stocks have inherently strong business models, which allow these companies to grow earnings and dividends over time. The reason behind this resilience even during turbulent economic conditions is that these companies deliver products or services which loyal consumers are willing to purchase on a frequent basis, while paying a premium price. Consumers are thus sticking to the strong brands they know, which allow the companies to maintain and grow their dividends even during the most challenging times.

Many investors in these quality dividend stocks are long term buy and hold investors, who enjoy receiving a higher stream of dividends every year. As a result, these stockholders are less likely to get scared by the daily fluctuations on Wall Street. Since these investors are living off dividends, they do not have to resort to selling when the market is nosediving on good or bad news. This loyal group of buy and hold investors would likely add to their stock positions, since lower stock prices increase current dividend yields. Dividend investing works in all market conditions, since the dividend payment represents a positive return on investment that is less volatile than capital gains.

The decrease in stock prices over the past weeks has many investors scared that the market is forecasting a dip in the economy. This panic has started to create an environment, where enterprising dividend investors could start adding to their positions at cheaper prices. In fact, if stocks keep going lower, this would create tremendous opportunities for enterprising dividend investors to scoop up some of the best dividend stocks in the world at fire sale prices.

The list of attractively valued dividend stocks has been expanding for me over the past two weeks. The dividend growth stocks I plan on adding to over the next two months include:

Philip Morris International Inc. (PM), through its subsidiaries, engages in the manufacture and sale of cigarettes and other tobacco products in markets outside of the United States. Yield: 3.80% (analysis)

Johnson & Johnson (JNJ) engages in the research and development, manufacture, and sale of various products in the health care field worldwide. This dividend aristocrat has increased dividends for 49 years in a row. Yield: 3.70% (analysis)

Realty Income Corporation (O) engages in the acquisition and ownership of commercial retail real estate properties in the United States. This dividend achiever has increased dividends for 17 years in a row. Yield: 5.60% (analysis)

The Coca-Cola Company (KO) manufactures, distributes, and markets nonalcoholic beverage concentrates and syrups worldwide. This dividend aristocrat has increased dividends for 49 years in a row. Yield: 2.80% (analysis)

Medtronic, Inc. (MDT) manufactures and sells device-based medical therapies worldwide. This dividend champion has increased dividends for 34 years in a row. Yield: 3.10% (analysis)

Lowe's Companies, Inc. (LOW), together with its subsidiaries, operates as a home improvement retailer in the United States, Canada, and Mexico. This dividend aristocrat has increased dividends for 49 years in a row. Yield: 2.90% (analysis)

Eaton Vance Corp. (EV), through its subsidiaries, engages in the creation, marketing, and management of investment funds in the United States. This dividend champion has increased dividends for 30 years in a row. Yield: 3% (analysis)

The Procter & Gamble Company (PG) provides consumer packaged goods in the United States and internationally. This dividend aristocrat has increased dividends for 55 years in a row. Yield: 3.50% (analysis)

PepsiCo, Inc. (PEP) manufactures, markets, and sells various foods, snacks, and carbonated and non-carbonated beverages worldwide. This dividend aristocrat has increased dividends for 39 years in a row. Yield: 3.30%(analysis)

Chevron Corporation (CVX), through its subsidiaries, engages in petroleum, chemicals, mining, power generation, and energy operations worldwide. This dividend achiever has increased dividends for 24 years in a row. Yield: 3.30% (analysis)

Kinder Morgan, Inc. (KMI) owns and operates energy infrastructure in the United States and Canada. Yield: 4.60% (analysis)

For a wider list of dividend stocks to consider adding to a dividend portfolio, check my post on core dividend stocks for income portfolios.

If stock prices go lower from here, this would create an even better opportunity to acquire well-run companies at fire sales. For everyone else, dividend investing is a perfect strategy where investors get paid for holding on to their investments.


Full Disclosure: Long all stocks mentioned above

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This article was included in Carnival of Personal Finance

2 comments:

  1. Hi there DGI, big fan here.

    If you have a moment, or if you feel like writing an article, I was wondering what your opinion on something like the iShares ETF DVI is? http://us.ishares.com/product_info/fund/overview/DVY.htm

    It has quite a few of your favorites, CVX, MCD, KMB, as well as some that I'm not too sure about. Seems like a decent way to diversify quickly with, say, 50% of your investment and then put the other 50% in a specific stock?

    Any comments appreciated, thanks again. -jason

    ReplyDelete
  2. Wow! What a great writing style.. I really appreciate your blog.. Well done

    ReplyDelete

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