A quorum of top investment gurus are ready to give their latest picks for squeezing income out of these volatile markets, writes Chloe Lutts of Cabot Wealth Advisory.
We recently conducted a short survey of our subscribers. Several common concerns were market volatility and economic uncertainty, but long term, there was one overarching concern among serious investors.
Today, I want to address a third common refrain. As a subscriber from Texas put it: "Maximize dividend income while preserving capital."
Two other respondents complained about the low interest rates on fixed-income investments.
Howard B. wrote that he would like help "finding the highest possible yield with investment-grade or high credit quality. I am looking for a combination of appreciation and current cash flow yields."
Charles M. is "trying to find safe, dependable, interest-bearing securities."
And a subscriber from Massachusetts simply wrote, "INCOME."
As more and more Americans approach retirement age, and lose other regular income streams, I expect to see this concern more frequently. Fortunately, unlike market volatility and economic uncertainty, making your portfolio generate regular income is entirely within your control.
There are a lot of fixed-income investments for investors to choose from: bonds and preferred stocks offer investors varying levels of security on corporate debt. And for all but the most conservative investors (those who really can’t afford to risk any capital, ever), dividend-paying stocks are a great way to generate income right now.
John Buckingham, editor of The Prudent Speculator, brilliantly explained the advantages of dividend payers:
"Clearly, equity investors must steel their nerves for heightened levels of volatility, especially as the European sovereign debt crisis remains front and center, growth in stronger economies like China and Germany has slowed, and recent economic statistics in the US have been far from robust, but relative to Treasuries, dividend yields are as attractive as they’ve been in 50 years.
"Aside from several months at the height of the 2008-2009 Global Financial Crisis, the last time the yield on the S&P 500 was above the yield on the ten-year Treasury was 1958. And the big plunge in both interest rates and equity prices on October 3 moved the forward yield on the S&P closer to the 2.8% yield on the 30-year Treasury!
"What’s more, corporations have actually been boosting their payouts, as more than half (258) of the S&P 500 members have either raised or initiated a dividend this year."
"It is nice to see the renewed interest in income, as we can’t forget that dividends and their reinvestment have long been a substantial contributor to the total return on equities. Data from Morningstar going back to 1927 show that through the end of last year, the income component of total return amounted to 41% for Large-Cap Stocks, 35% for Mid-Cap Stocks, and 31% for Low-Cap Stocks.
"More importantly, our own analytical work going back 20 years and numbers we’ve crunched from Eugene T. Fama and Kenneth R. French dating to 1927 find that dividend payers have actually outperformed non-dividend payers over the long term, and they have done so with lower volatility! Not quite the Holy Grail, but higher returns with lower risk is obviously a winning combination."
Hard to argue with that. So, assuming that our subscribers aren’t the only investors looking to generate more income from their portfolios, I’ve chosen five great dividend-paying stocks to tell you about today.