Whether you are an experienced stock investor, or a novice seeking to learn about the mysteries of Wall Street, here is one powerful suggestion I would make to anyone who asks about sound stock investing.
I urge serious long-term investors to anchor their stock investment portfolios with dividend paying stocks. We all know that our local shopping centers try to anchor their variety of retail stores with strong, well-known, big name department stores or major supermarket chains. Likewise, our own stock portfolios should contain strength, which includes stock names with good track records of paying healthy dividends over a substantial period of time.
Nobody can predict or control the ups and downs of the stock market. The volatility of stock prices is a fact of life, that’s not going away any time soon. Healthy dividend paying stocks tend to be less volatile than stocks that don’t pay dividends. This means that when the stock market goes down, many dividend stocks don’t go down as much as the general market.
The opposite is also common. When the stock market makes huge gains, many dividend stocks may not increase quite as much as the market itself. This is not to say that dividend stocks don’t fluctuate up and down, they just don’t tend to fluctuate as extremely as non-dividend paying stocks.
So, what does all this mean for the average investor? Back in 1988, Geraldine Weiss of La Jolla, California, published what soon became a classic book, entitled Dividends Don’t Lie. The premise of this book, which is still valid today in 2016, is that investing in time-tested ,dividend-paying blue-chip stocks produces the steadiest, most stable gains in stock investing, when compared with almost any other investment strategy.
Today, with interest rates at all-time lows, typical interest bearing investments, such as bonds and CDs, are not delivering the returns that investors were used to in the ‘70s, ‘80s, and ‘90s. In today’s financial environment, investments that have a better chance of delivering the returns that savers and investors desire are dividend-paying stocks.
Another book that has been a classic for more than two decades is Beating the Dow by Michael O’Higgins. Published in 1991, his book soon became, and still remains, a blockbuster best seller. Its simple message was that by building a portfolio of the 10 highest dividend-yielding stocks selected from the 30 stocks of the Dow Jones Industrial Average, an investor would fare better than most professional portfolio managers over the long term. From this book was coined the phrase “Dogs of the Dow”. Over the years, numerous mutual funds, brokerage firms, and investment advisors, have successfully managed stock portfolios, by using this method of selecting dividend-paying stocks.
These are a few of the numerous reasons that stocks of financially sound companies, with strong records of regular dividend payments, are more stable investments than just relying on stock tips from friends at cocktail parties.
In my opinion, I’d have to say that “real men”, and “real women” as well, invest in dividend paying stocks.