When it comes to the stock market, there are three ways a profitable, publicly traded company can reward its investors: 1) pay a dividend; 2) initiate a share buyback plan; or 3) invest it back into the company. All three of these are aimed at building shareholder wealth, though some are more popular than others.
Investors looking for capital gains and an income stream in today’s economic climate can’t go wrong with fundamentally strong companies with a good history of paying out quarterly or monthly dividends.
In light of low interest rates, many dividend-yielding stocks outperform the historical avenues for investment income. Most banks begrudgingly doll out just 0.5% interest, while 30-year Treasuries come in near a mere three percent.
Investors hoping to maintain a comfortable retirement need to find better income streams—and for many, it’s in high-yield dividend stocks. Consumer goods company Altria Group Inc.’s (NYSE/MO) share price is up almost 200% since the beginning of 2009, and it currently provides an annual dividend of 5.1%. And business equipment provider Pitney Bowes Inc. (NYSE/PBI) provides an annual dividend of 10.1% and is up 35.5% since the beginning of 2013.
Getting quarterly checks from a company for simply being an investor is a great way to generate additional income. But are there any downsides? Cutting or eliminating a dividend can significantly impact a company’s share price. Paying out dividends decreases the amount of money a company has, meaning it may not be able to operate as efficiently if an unforeseen situation arises—like one did in 2008, when the markets crashed. Companies that didn’t have enough cash to operate … Read More