High Dividend Stocks More Attractive in Volatile Markets

Written by The Dividend Guy on August 24, 2007

In very volatile markets that we have just seen in the last few weeks, and with much more to come, high dividend stocks may be safer in the long term. I think about it in terms of what a company can and cannot control.

Although a company’s share price is determined by things like revenue and earnings, there are many things such as investor sentiment and general market outlook that seem to have more impact on stock prices. Dividends on the other hand are directly within the control of the company - more importantly the ability to increase dividends on on a regular basis can be their policy.

With this in mind I find comfort in the fact that companies I have invested in are safer bets than other companies that do not have a dividend policy of paying and/or raising dividends. I will continue to see my dividend payments no matter what is happening in the markets and the share prices of these stocks (for the most part - keep in mind dividends are in no way guaranteed).

An article from The India Times sums up this concept up recently by stating:

Besides providing recurring annual income, high dividend stocks are a perfect hedge in a volatile market. In the long term, dividends grow in tandem with the rise in company’s top line and bottom line. However, this many not be true for its stock price. This is because stock prices are driven by a mix of fundamentals and sentiment, while dividend payout is a function of company’s finances and its dividend policy. As such it is easier to project dividend payout than make a guess about stock prices, which can behave erratically at least in the short-term.

As a quick case in point, Royal Bank of Canada which, despite poor stock performance over the past three weeks, has raised its dividend 9% to $2.00 per share per year.

Just to wrap up, I ran a quick screen using the MSN Investor Toolkit and came up with a list of high dividend stocks that may be worth a look:

High Dividend Stocks Screen

Disclosure: I own shares in Royal Bank of Canada


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