With investors rushing into high-yield dividend paying and dividend growing stocks and bonds, thanks to Treasurys that don’t even cover inflation, those yields have gone down.
A slow global economy hasn’t helped. Nor has concern about the “Trump effect” on said economy.
Warnings Are Being Sounded
As a result, some experts are warning investors to stay away from certain dividend producers or even sell them if they hold them.
Although U.S. companies collectively increased dividends by $6 billion in Q3 that represents a drop from the $7.3 billion in dividend hikes announced in Q2. Compared to Q3 2015, when increases of $10 billion were announced, the picture is even worse.
Among stocks some are leery about
Bank of America currently yields 1.44%. While that’s better than the negative yield of the past few years, it’s not close to the more than 5% yield before the financial crisis.
Citigroup is yielding 1.13%. Before the meltdown it was 4%.
The question is: How long will it take to grow back up to those pre-recession yields?
Visa is seen as a financial firm but in truth it is playing on the same field as tech firms like PayPal PYPL, Square SQ and Apple AAPL. The company has a large network but yields only 0.82%.
Investors expect the dividend to grow. At its current rate, the yield could be 5% in a decade. The question some ask – is that enough?
PetroChina, a government-owned company in China has an astronomical P/E ratio of 137.04. Add a meager yield of 1.02% and PTR is simply seen as too risky for serious consideration.
On The Optimistic Side
The previous cautions do not mean investors should avoid dividend stocks. Dividend stocks are an important part of any smart investor’s portfolio.
Based on the concept that the best dividend-paying stocks perform best when held for a long time, the key is to find stocks that will withstand the test of time.
Pharma certainly projects a sense of relief following the election. Hillary Clinton promised it would clamp down on rising drug prices. But she did not win the election.
On the other hand, the incoming Trump administration has been fairly quiet on its views regarding M&A, a vital part of the pharmaceutical industry.
Energy is somewhat complicated. Chevron and others should benefit from Trump’s stated pro-fossil fuel policy.
A possible recession or, worse yet, trade issues, could reduce demand for oil. With oil prices somewhat stabilized and Chevron’s 4% yield, some experts think this company is a good bet.
Another company dependent on trade policy, GE stands to gain so long as trade remains reasonably stable.
Experts say patient investors will benefit from GE’s transition back to a pure-play industrial company.
Merck & Co. showed gains of more than 20% and although price appreciation has lowered the yield to around 3%, the company appears to be in good standing.
As with most big pharma, MRK makes use of M&A to grow. If opportunities continue, this company, according to analysts should be well positioned for the new year.