Dividend Investing Today | Fidelity



Fidelity Investments Fund Managers got together recently to talk about why dividend investing looks particularly appealing now. Learn more at http://www.fidelity.com/dividend. To see more videos from Fidelity Investments, subscribe to: https://www.youtube.com/fidelityinvestments Facebook: https://www.facebook.com/fidelityinvestments Twitter: https://www.twitter.com/fidelity Google+: https://plus.google.com/+fidelity LinkedIn: https://www.linkedin.com/company/fidelity-investments ------------------------------------------------------------------ One thing that I think is underappreciated is the role that dividends play in total return. You know, total return has two components. It’s price return plus income return or dividends. And since 1940, dividends have actually contributed 40% of total return for the equity markets. And indeed, there were some decades where dividends were the greatest portion of total return, or in fact the first decade of this century. It’s known as the lost decade, where in fact prices were very volatile, but at the beginning and the end of the decade, prices were flat, dividends were over 100% of total return. Yeah, and I think the exciting thing there is if you look at the market today in the US in particular, companies aren’t actually paying out a big percentage of their earnings and dividends right now. The payout ratio, which is just the percentage of a company’s earnings that it pays in a dividend is quite low, it’s in the low thirties right now, versus historically, 50 or 60%. So I think there’s a lot of room for growth in dividends in the US market in particular right now. W ell, not only that, only about 70% of companies are paying dividends today. I mean, only as recently as 1990 it was over 90%. So not only is there room for the dividend to grow, the opportunity to have companies pay more dividends, and to broaden your portfolio and exposure is very great. The good news there is we’ve actually seen the turn. We’ve seen payout ratios start to increase. We’ve seen the attention towards dividends start to increase. And if you look at the aggregate corporate balance sheet of America, there’s about $1.8 trillion in cash, which is the largest it’s ever been. Which means that only can they grow dividends, but the dividend has a greater security than it has had in quite a long time. I think dividends are a really important signal about the health of the company and the confidence of management to continue to maintain that dividend, because we all know what can happen to stocks who pull back on their dividend, eliminate a dividend, or cut a dividend. It’s really devastating for stock prices. The other thing is dividends are always positive. Earnings can go up and down. So if you’re in a growth stock, you’re depending on earnings, and you’re exposed to lots of earnings fluctuation where -- and volatility. But if the - - if the dividend-oriented stocks, you always get your dividend no matter what happens, unless the company’s really in trouble. And what is a dividend but a fixed-income payment? It is so important in an income starved world and a yield-starved world too. Squeeze every ounce, every basis point of income out of your total portfolio. Fidelity Brokerage Services, Member NYSE, SIPC. © 2013 FMR LLC. 900 Salem Street, Smithfield, Rhode Island 02917 662086.3.0

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