In my opinion, no matter your age or your approach to investing, there is one kind of investment that may be considered for your portfolio: dividend-paying stocks.
While hardly the sexiest of investment choices, dividend-paying stocks may offer a difficult-to-beat combination -- good quality and a history of typically lower volatility than the overall market. Many people understand the old tale of the tortoise and the hare. Well this is no different. The tortoise is not flashy or speedy, but over the long haul, he runs a steady and rewarding race. The proof is in the pudding. Over the past 80 years, about half of the market's growth, as measured by the S&P 500(R), has come from dividend-paying stocks.
A good place to start is to think about what products and services it takes to run your home, your business, your car, and the school your kids go to. Many of these household brands, from Gillette razors, Pampers diapers, and Cheerios cereal, offer the quality that you and millions of people depend on.
Not long ago, however, dividend paying stocks drew little interest and almost no enthusiasm. Seemingly, from 1995 to the early 2000s, they fell out of favor while the focus was on the tech boom. After that boom went bust, many investors became risk-averse and have now come to realize that the 5% CD yields are not likely coming back any time soon.
While younger investors can afford to take on higher risk for greater long term growth potential, most everyone can benefit from having some dividend-paying stocks in their portfolio. The steady growth may have a payoff over time, especially if dividends are immediately reinvested in additional shares.
There's another quality, sometimes overlooked, of many dividend-paying stocks. A large number of corporations have significant investment in emerging and global markets. This provides additional exposure for potential growth as well as risk from these economies. Developing nations' aspirations to reach the middle class in many countries translates to the production of commodities such as better hygiene products, higher-quality food, more modern appliances, and other goods that enable a healthier and more productive lifestyle which also makes them consumers of the same US household names we buy today.
It is always possible that when interest rates rise, the returns of dividend-paying stocks could take a hit. And when the market experiences a big boom, these types of stocks do not always match the growth rate of other stock types. These are all reasons why it's important to work with an advisor to structure a suitable and well balanced portfolio specific for your needs.
Caroline Hill, Financial Advisor
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).