December 31, 2008

High dividend stock strategy

With the market down significantly there are a lot of stocks with attractive yields on their dividends. Its not too hard to find blue chip, large cap stocks with yields in the 4-7% range. You can also find ETFs paying yields in the 4-9% range. A high dividend stock or ETF gives you both a fixed income return and potential for stock price growth.

I've decided to invest in high dividend stocks and ETFs for my own Roth IRA funds. I only started my Roth IRA in 2008 and it represents a relatively small portion of my total assets.

Things to keep in mind when investing in dividend stocks:

  • Dividends are taxable as they are earned.
  • Dividend rates are NOT guaranteed. If a company has difficulties then they may very well drop their dividend.
  • Dividend rates for ETFs can be highly variable year to year.
  • A drop in the price of the equity can more than wipe out any dividend gains. If a stock pays 10% dividend but drops 20% in a year then you're still down 10%.
  • Generally dividend paying stocks are lower growth and long term are more likely to see lower price increases compared to non dividend paying growth stocks. Its generally a trade off between higher likelihood of growth and income of dividend payments.

Below are a number of individual stocks and ETFs with attractive dividend rates. These are only a random selection. You can find your own high dividend equities by using a stock screener.

Individual stocks
Harley-Davidson, Inc. (HOG) = 8.1%
General Electric (GE) = 7.8%
Pfizer (PFE) = 7.5%
Alcoa (AA) = 7.0%
Dupont (DD) = 6.6%
AT&T (T) = 5.9%

REIT ETFs
iShares FTSE NAREIT Residential (REZ) =10%
Vanguard REIT Index ETF (VNQ)= 9.6%
SPDR DJ Wilshire REIT (RWR) =9.3%

Diversified and Index ETFs
WisdomTree LargeCap Dividend (DLN) = 4.6%
iShares Dow Jones Select Dividend Index (DVY) = 5.7%
WisdomTree Dividend Top 100 (DTN) = 6.3%
PowerShares Intl Dividend Achievers (PID) = 7.28%
Vanguard High Dividend Yield Indx ETF (VYM) = 4.62%

The dividend yields given are dependent on the exact dividend rate and the price paid. Since the price varies daily and the dividend can change as well the yields are going to be variable over time.

Please note that these are NOT recommendations of stocks that I think you should go buy. I'm not qualified to be a good stock picker. I'm just giving some examples of stocks and ETFs with high dividend yields. Before you go buying any stock or ETF you should research the fundamentals of the investment to determine if its a good deal or not.

References:
List of High Dividend ETFs

1 comment:

  1. I think you've presented some great stocks and ETFs to look at. For a "lazy" approach, which is probably best for most of us, I'd prefer your Vanguard High Dividend Yield Index ETF (VYM). The yield is a bit lower than some of the others, but its got broad diversification, low fees, and fairly low exposure to financials.

    Thanks!

    ReplyDelete

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