Dividend Growth Investor: Stocks Versus Bonds Today
Investors have a number of asset classes to invest in. Historically, liquid investments have been divided between stocks and bonds. Years of interest rates at zero percent made stocks more attractive than bonds.
Even before interest rates went to zero, they were trending down for decades. That made stocks more attractive for some time. Bond investors did well initially, but reinvesting at lower rates eventually made that position less attractive.
Today, the situation may not have reversed, but it’s less weighted to stocks. Bond yields have ticked up, with some banks now offering certificates of deposit with 5 percent yields. Given that fixed income also guarantees your original principal, that extra safety is appealing when stocks are trending down.
And, while a 5 percent yield may be the highest in nearly 15 years, it doesn’t change over time. Investors get locked in. That could be a problem if inflation stays higher for longer.
While stocks are riskier, the income component, dividend payments, can also change over time. Some companies even make the decision to raise their payouts consistently as earnings rise.
While a small minority of stocks, dividend growth stocks can offer a higher certainty of not losing value relative to a non-payer, or even a steady payer. And they can provide more bond-like certainty than other types of stocks.
A dividend growth strategy may not win out over a year, but over a 10 year period or longer, it could be the optimal strategy to invest.