Sunday, November 26, 2006

Dividend Growth Stocks In A Slowing Economy

A recent BusinessWeek online article titled, Making Dividend Plays Pay, and an excerpt from a Standard Poor's Equity Research report, contained an analysis of the yields, payout ratios, and quality make up by sector for several S&P indices.

(click on chart for larger image)

The article outlines the importance of reinvested dividends:
"Dividends—those steady streams of periodic payments received by equity investors—may seem as unexciting as a Social Security check, but you might think again when you realize that reinvested dividends have actually contributed more than 40% of the S&P 500's total return since 1929 (emphasis added). What's more, the S&P 500 dividend yield averaged nearly 4% in all years since the mid-1930s and averaged nearly 6% during the 1940s. Things look a little different these days, of course. The yield on the "500" has averaged only 1.6% thus far this decade, after averaging only 2.4% during the 1990s..."

S&P believes the economy is entering a slower growth phase. As a result, they believe investors should focus on higher quality dividend paying stocks:

"Due to the expected tepid market performance, S&P recommends that investors gravitate toward sectors and companies that offer relatively high dividend yields and have consistently increased their earnings and dividends over an extended period of time."

Making Dividend Plays Pay
BusinessWeek Online, September 5, 2006

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