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”.