Stocks that pay dividendscan make a great addition to
your portfolio. What they can't do, however, is give you a
boost in income without adding any risk to your
investments.
Feeling the income crunch
Unfortunately, an income boost is exactly what many
investors are looking for right now. Across the financial
markets, investors are seeing payouts on their investments
drop dramatically.
CD rateshave fallen to the point at which it's difficult
to earn more than 3% to 3.5% on your money, even if you're
willing to tie it up for five years or more.
In response, some investors have
moved their safe moneyto riskier investments in order to
obtain higher yields. Yet even longer-term bond funds, which
expose you to quite a bit of interest-rate risk, aren't
paying huge yields right now. One long-term Treasury fund
yields just 3.75% despite owning bonds with an average
maturity of almost 20 years. Even the Vanguard High-Yield
Corporate Fund (VWEHX), which owns bonds of issuers like
Chesapeake Energy (NYSE: CHK),
Mosaic (NYSE: MOS), and
Sprint Nextel (NYSE: S), has seen its yield
fall from double digits to less than 8% in recent months.
Why dividend stocks are attractive
Given the dearth of income most people are seeing from
their portfolios, it's easy to understand why dividend-paying
stocks are so tempting. Not only are their yields
extremely attractivecompared with other income-producing
investments, but also the capital appreciation that many of
those stocks have seen so far this year blows bonds and other
investments out of the water. Just look at how well these
dividend stocks have done:
Stock
Current Yield
2009 YTD Return
Altria Group (NYSE: MO)
7.5%
20.3%
Spectra Energy (NYSE: SE)
5.1%
26.6%
PPG Industries
3.5%
41.6%
DuPont (NYSE: DD)
5.0%
30.6%
Caterpillar (NYSE: CAT) Continued... |