Dividends In A Recession

If we accept that we are in a recession, should we avoid buying into companies that traditionally were valued for their dividend yields?

When it comes to dividends paying stocks studies show that:

  • Dividend-paying stocks, in part due to their income streams, tend to be more stable than their non-dividend paying brethren
  • Dividend-paying stocks in general tend to outperform non-dividend paying stocks in down markets
  • By consistently reinvesting dividends during down markets, investors can substantially expand their asset base, which puts them way ahead of the game when markets recover and stock prices soar – as they eventually do.

The important question is which are the smart dividend paying stocks in which to invest?

As a start, we must focus on companies with:

  • Established market share
  • Sustainable competitive advantage
  • Stable and/or growing earnings that provide above-average dividend yields.

While this is a very simplistic view, there is no reason to take a simple question and make it too complicated.  

There are good dividend paying stocks in the market right now, it’s up to us to separate the “wheat from the chaff”.

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