A Wealth of Common Sense: Dividend Stocks Are Cheap
With the stock market trading near all-time highs, it’s easy to forget that just a handful of stocks powered most of that move. That’s especially true given the high market concentration in the Magnificent Seven tech stocks.
However, other parts of the market have started to perk up. That’s a healthy sign for stocks. It could mean that other companies could take over market leadership in the months ahead.
Outside of the big cap tech stocks, dividend-paying stocks are still unloved by the market. These companies tend to trade more slowly, but can deliver steadier returns. Especially when invested in for the long-term.
Remember, companies pay a dividend when their earnings exceed what is needed to reinvest in the company. Since shareholders are owners of the business, they get some of the excess capital involved.
Over time, several studies have shown that earning and reinvesting dividends can account for more than half of a portfolio’s total return.
Plus, with interest rates set to decline, dividend-paying stocks will look more attractive for risk-averse investors. That’s particularly true for higher payers such as real estate investment trusts (REITS) or partnerships (LPs). These types of high-yielding stocks also carry different tax considerations.
Even with the overall market near all-time highs, plenty of dividend stocks offer investors a relative value today.