Post by Zoinkers on Aug 3, 2006 14:10:28 GMT -5
Dividend-paying stocks pull ahead
By Adam Shell, USA TODAY
NEW YORK — Thanks to rising turbulence in financial markets, dividend-paying stocks are again acting as life preservers for jittery investors.
In search of protection in an increasingly volatile market, investors have yanked a page out of legendary value investor Benjamin Graham's book, The Intelligent Investor, and are implementing an investment strategy that affords them a "margin of safety," says Jeffrey Saut, chief investment strategist at Raymond James.
Indeed, those dowdy, defensive, dividend-paying stocks that pay a guaranteed cash stipend every three months are suddenly performing like market leaders. They have outperformed stocks that don't pay dividends, and thus rely solely on appreciation, by nearly 4 percentage points in July, and by more than 8 percentage points year-to-date, Standard & Poor's says.
Dividend payers are up 4.3%, vs. a decline of 3.3% for non-payers through the end of July, says S&P. And since the S&P 500 hit its 2006 peak on May 5 and suffered a steep pullback, payers have provided a lot more protection from losses, declining only 4% as non-payers cratered 11%.
"The market is now demanding and paying a premium for reliable cash flow," says David Sowerby, portfolio manager at Loomis Sayles. "Stocks that pay dividends (are) a way for investors to put on a raincoat and protect themselves from stormy markets."
The lure of stocks that offer cash payouts is common when markets stop going straight up, says Nicholas Sargen, chief investment officer at Fort Washington Investment Advisors. "In a sell-off phase, it is a very good defensive way to play the market. Much of your return comes upfront in the form of dividends."
Dividends cushion the fall when stock prices decline. They also provide a double bang for investors' bucks because they can add to a stock's total return when prices are rising. "Say you buy a stock with a 5% (annual) yield," says Saut. "The share price can decline 5% over the next 12 months, and you are still even."
S&P 500 stocks, on average, are yielding 1.9%, S&P says. This year, 200 companies in the index have increased their dividends, vs. 207 this time last year.
In down markets, the riskiest assets tend to fall the most. That's what happened in May, when a global liquidity squeeze caused emerging-markets stocks and small-company stocks, which typically do not pay dividends, to suffer double-digit losses. Says S&P's Howard Silverblatt: "The more market turmoil you get, either up or down, the bigger the variance in performance between payers and non-payers."
In 2002, the last year of the bear market, payers lost 10.9%, vs. a 30.3% fall for non-payers. In 2003, the first year of the current bull market, stocks that pay dividends rose just 33.5%, vs. a 61.7% gain for non-payers. Barring a big rebound on Wall Street, which would favor more aggressive stocks, dividend-payers should continue to outpace the market, Saut says.
Posted 8/2/2006 10:17 PM ET
By Adam Shell, USA TODAY
NEW YORK — Thanks to rising turbulence in financial markets, dividend-paying stocks are again acting as life preservers for jittery investors.
In search of protection in an increasingly volatile market, investors have yanked a page out of legendary value investor Benjamin Graham's book, The Intelligent Investor, and are implementing an investment strategy that affords them a "margin of safety," says Jeffrey Saut, chief investment strategist at Raymond James.
Indeed, those dowdy, defensive, dividend-paying stocks that pay a guaranteed cash stipend every three months are suddenly performing like market leaders. They have outperformed stocks that don't pay dividends, and thus rely solely on appreciation, by nearly 4 percentage points in July, and by more than 8 percentage points year-to-date, Standard & Poor's says.
Dividend payers are up 4.3%, vs. a decline of 3.3% for non-payers through the end of July, says S&P. And since the S&P 500 hit its 2006 peak on May 5 and suffered a steep pullback, payers have provided a lot more protection from losses, declining only 4% as non-payers cratered 11%.
"The market is now demanding and paying a premium for reliable cash flow," says David Sowerby, portfolio manager at Loomis Sayles. "Stocks that pay dividends (are) a way for investors to put on a raincoat and protect themselves from stormy markets."
The lure of stocks that offer cash payouts is common when markets stop going straight up, says Nicholas Sargen, chief investment officer at Fort Washington Investment Advisors. "In a sell-off phase, it is a very good defensive way to play the market. Much of your return comes upfront in the form of dividends."
Dividends cushion the fall when stock prices decline. They also provide a double bang for investors' bucks because they can add to a stock's total return when prices are rising. "Say you buy a stock with a 5% (annual) yield," says Saut. "The share price can decline 5% over the next 12 months, and you are still even."
S&P 500 stocks, on average, are yielding 1.9%, S&P says. This year, 200 companies in the index have increased their dividends, vs. 207 this time last year.
In down markets, the riskiest assets tend to fall the most. That's what happened in May, when a global liquidity squeeze caused emerging-markets stocks and small-company stocks, which typically do not pay dividends, to suffer double-digit losses. Says S&P's Howard Silverblatt: "The more market turmoil you get, either up or down, the bigger the variance in performance between payers and non-payers."
In 2002, the last year of the bear market, payers lost 10.9%, vs. a 30.3% fall for non-payers. In 2003, the first year of the current bull market, stocks that pay dividends rose just 33.5%, vs. a 61.7% gain for non-payers. Barring a big rebound on Wall Street, which would favor more aggressive stocks, dividend-payers should continue to outpace the market, Saut says.
Posted 8/2/2006 10:17 PM ET