This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
$1 buys you full access to ALL of TheStreet's Subscription Services! Learn More

He's Baaaaack . . .

Stocks in this article: SO

Dividend stocks have done well, and we expect they will continue to do well. There are several possible explanations for their recent run. It may be due to the fact that dividends have been the major source of return since the Great Bull Market ended 12 years ago.

Further, the near-zero interest rate policy of our central bank has driven down yields on Treasury securities to the point where a 2% dividend looks juicy. Lastly, the rise of dividend stocks may simply be attributable to the fact that regular cash payments are a sign of financial strength in a world where governments and markets are struggling.

To me this says that regardless of the tax environment dividends will continue to be important. But given the market's rotation into dividend-paying stocks, price and valuation are important, too.

In our view, many utility companies have gotten a bit rich lately. Price earnings ratios have risen on solid companies like electricity provider Southern Company (SO), where the P/E ratio went from about 11x in 2008 to approximately 19x very recently.

In contrast, the average P/E ratio of the S&P 500 stands at about 14x. In general, we don't like to see growth stock multiples on slow-growth utility companies and we believe the market will adjust this over time. Perhaps this process has begun as demonstrated by SO, which fell off a cliff at the beginning of this month.

In general, it's never a good idea for tax implications to drive your investment decisions. True, dividends may be more highly taxed in the future, but they still will provide a level of return in the form of cash flow that is sorely needed by many retirees.

Price is important and a portfolio of dividend payers must be managed very carefully. Presidents and their policies come and go but your needs as an investor must be met with what is available at the time. So for many individuals dividends aren't done and remain an integral part of their investment strategy.

While were on the subject, below is a list of stocks to watch that also happen to pay a healthy dividend. Please keep in mind that we may own these shares in our customer accounts.

Michael Shamosh co-authored this article.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

2 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,828.24 +0.49 0.00%
S&P 500 2,067.56 -5.27 -0.25%
NASDAQ 4,791.63 +4.3130 0.09%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs