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The reason why a lot more individuals are buying dividend-paying shares, not necessarily bonds

Individuals are purchasing for dividend-paying stocks and shares in an unusual market environment. Record-low rates of interest make it so most aren’t enthusiastic about stocking cash within the bank. Despite a sputtering economic recovery, companies sitting on huge piles of money can afford nice dividend payouts. Companies paying an average provide bond in dividends have hit a 15 year high. The dividend tax rate is low. Shares that are dividend-paying can also give a nice hedge against inflation. They also help keep a revenue stream going. The only problem with the dividend-paying stocks is that they are protected with Bush tax cuts. If those go, so will the popularity of dividend-paying stocks.

Every person hopes to get a dividend-paying stock

Dividend-paying stocks are super well-liked right now. That is for many reasons. Stock dividends don’t usually do as well as bonds have. In the last 15 years, there has been a change, explains Bloomberg. U.S. stocks are a lot more profitable than bonds now. Companies raised payouts by 6.8 percent in the second quarter. Because worker productivity has gone up, companies have changed. Now they’re sitting on a lot of cash. Record low rates of interest made it so dividend-paying stocks might be cheap and have a 2010 projected growth of 36 percent. A 10 percent drop within the S and P 500 since April also pushed up dividend yields relative to share price. It’s giving investors the chance to buy shares that pay much more than bonds, at inexpensive price-to-earnings multiples.

Why there is so much interest in dividend paying stocks

Linda Stern at ABC News explains that stock dividends are good to hedge against inflation which is the reason why investors want them. Numerous think about how dividend checks can be cashed anytime. This helps during a rough economy where bond and shares are losing value. During an economic recovery, if inflation kicks in, dividends can follow suit. However, dividend-paying stocks carry risk. Stern uses Bank of America and Citicorp shares, which saw generous dividends disappear through the credit crunch, as an example. Bush tax cuts are prepared to expire on December 31 which would mean dividends could possibly be taxed as high as 39.6 percent again. There is a 15 percent tax on capital gains. Dividends share that rate at present.

Picking the right dividend-paying stocks

Now is the time to check out dividend-paying stocks as a long-term investment, as outlined by Matt Theal at MarketWatch. Theal said investors should watch for businesses that pay dividends higher than the return in the credit markets. Currently 68 businesses within the S and P 500 provide a lot more than 3.78 percent, the average rate within the credit markets since 1995. Theal used a stock-screener to search for S and P 500 corporations paying a dividends yield of 3.78 percent that sell under 12 times earnings. Bristol-Myers, Reynolds American Inc., Verizon Communications and Excelon Corp were among 25 companies that came up.

Additional reading

Bloomberg

bloomberg.com/news/2010-09-06/dividends-top-bond-yields-by-most-in-15-years-as-u-s-cash-pile-increases.html

ABC News

abcnews.go.com/Business/wireStory?id=11584528

Marketwatch

marketwatch.com/story/high-dividend-stocks-to-consider-2010-09-08?reflink=MW_news_stmp

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