are dividends good
Just a few short years ago investing in dividend paying stocks looked like an excellent idea. In fact in as late as 2007, for example, it was known that dividends contributed to a large part of the S&P 500’s growth and not the stock price itself. In the last year things have changed however, and this last year was the worst year for dividend payouts since 1956 when the S&P started keeping track of this data. So what’s the future for dividend paying stocks?
Dividends have always been looked at as a reward to stock holders who remained faithful and loyal to the stocks they were holding. They are paid out over and above any price increase in the stock. This has been good for the investor and over time they can significantly raise the value of a person’s portfolio. However, dividends are paid out of profits the company is making, i.e., out of cash. If dividends were strong or increased in any given year that usually meant that the company was in a strong financial position, it expected to be able to continue to meet that dividend payout and it remained hopeful that profits were expected to be strong.
That was then, this is now.
Take a look at a few examples. Bank of America had been a strong dividend player before the stock market fell in 2008. They had been paying as much as 4.7% of the stock price in dividends. In October of 2008 they slashed their dividend by 50% on poor earnings and of course conservatorship by the US government. At the same time, Citigroup had been paying 4.1% and is now at a dismal.82%. But on the other hand, in the same time period, Proctor and Gamble increased its dividend by 10% to 3.5% of the stock price. Johnson & Johnson did the same thing, raising its dividend 6.5% and is now at 3.81% of stock price. What’s the difference?
In a word, earnings, more importantly, cash. J&J and Proctor & Gamble are in the staples market. During poor times they provide consumer goods that are needed regardless of the markets and economic conditions. Banks, on the other hand, went through poor earnings periods. The result: one sector has cash the other doesn’t. It is cash that drives dividends.
So, is this a market that can pay dividends? The answer lies in which sector you are looking at and which company in that sector. Those sectors and companies that have high sales or increased market share and which can translate this into cash are the ones likely to continue or even increase those dividends. Those who are lagging in sales, going through a restructuring or those that didn’t pare down in this economy and are therefore losing money are the ones that won’t be able to continue this practice. In short, like in all times, due diligence is called for. The old stand-by stocks that always paid well may not be the ones that will continue to pay their dividends in the short term. The ones that are flush with cash may very well be the players you should look at.
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Article Source: ArticlesBase.com – Income Through Dividend Stocks
Question: will hdfc bank give good dividends ?. I have 20 shares. it is difficult time to release from .Please suggest.
Answer: Well most of the Stocks are down in these days . Wait till May for better returns. Bonus on 20 Shares will be there may be later !