With interest rates low, should I buy dividend paying stocks instead of bonds?
No. Dividend-paying stocks are stocks not bonds and cannot be counted on to provide the stability good quality bond holdings have provided. Dividend paying stocks are every bit as risky as the rest of the stock market. Why?
Dividend-paying stocks are a minority in the market, and for good reason. The cash to pay the dividend comes from coffers filled after corporate taxes were paid and the distribution is not deductible to the corporation. By paying a dividend, that cash is not available to be reinvested in staff, facilities, research, development, marketing or any other activity management may want to undertake to improve the health of the business. Paying dividends can put a company at a disadvantage in our highly competitive marketplace.
Dividends payments are a voluntary action. Management can cut or eliminate dividends at any time. Some companies hurt themselves by continuing to pay dividends because they fear a negative reaction from the market or make themselves less competitive. That’s a lot of uncertainty.
Unfortunately, there is a lot of press out there suggesting dividend-paying stocks are dramatically safer than non-dividend paying stocks. That is just not true.
Look at just about any mutual fund focused on dividend paying funds and it is clear, those stocks sank right along with the rest of the market. For example, below is a chart of three ETFs. IVV tracks the S&P 500 (Blue), VYM is Vanguard’s highest rated, dividend focused fund, the High Dividend Yield Index Fund (Orange), and SHY tracks US Government Bonds maturing in 1-3 years (Purple) over the 12 months ended 9/30/2009.
We frequently produce Q&A columns for Florida Today, Investopedia and MarketWatch, a personal finance website of the Wall Street Journal, as well as pieces for Financial Advisor magazine and others. Here is a sampling from the last three months.
Mike Salmon provided a few answers to readers of the Orlando Sentinel for it’s “Ask the Expert” series. Mike chimed in on how tax filing changes when one is widowed, why most people should prefer term life over whole life insurance, and why some people over 70 should still own diversified stock funds.
In the News…
Charlie Fitzgerald joined financial planners from around the U.S. in Washington, DC for the Financial Planning Association’s Advocacy Day in early June. The group spoke with many members of Congress and their staffs about issues that impact the clients of financial planners. Pictured with Charlie are other members of the Florida delegation and Rep. Stephanie Murphy from Charlie’s Congressional District 7, which covers mostly Orange and Seminole Counties.
Dan Moisand traveled to the west coast and the campus of UC Santa Barbara to serve as a “Profession Ambassador” at FPA’s NexGen Gathering. Gathering is a conference for members under the age of 36. Dan has long been an advocate for programs specifically geared to younger planners and was FPA National President when the first NexGen conference was held in 2006. Dan provided history, perspective and wisdom to future leaders of the profession. Says Dan, who opted to stay in the dormitory to more easily facilitate conversations, “It was an energizing experience despite how my back felt by the end of it all.”
Moisand Fitzgerald Tamayo, LLC again made Financial Advisor magazine’s list of the top independent Registered Investment Advisor firms in the US. The list is based upon total assets under management.
Things We Found of Note
75% of American’s have at least one big financial regret. (Bankrate)
70% of people regret spending on restaurants. (Common Cents Lab)
Moisand Fitzgerald Tamayo, LLC is an Orlando, FL and Melbourne, FL based fee-only financial planner serving central Florida and clients across the country. Moisand Fitzgerald Tamayo, LLC specializes in providing objective financial planning, retirement planning, and investment management to help clients build, manage, grow, and protect their assets through all phases of one’s life and the many transitions in between.
If you have any questions or would like to discuss anything further, please give us a call or send us a note.
If you are not a client and wish to receive emails notifying you of new posts – no more than once per month – fill out the subscription information in the sidebar to the right.
Important Additional Information & Disclosures
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Moisand Fitzgerald Tamayo, LLC-“MFT”), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.
Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from MFT.
Please remember that if you are a MFT client, it remains your responsibility to advise MFT, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. MFT is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. Tax advice is given only to clients and only when agreed to by MFT. A copy of the MFT’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request.
Please Note: MFT does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to MFT’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.
Please Note: Limitations: While MFT does NOT pay for recognition, awards, or publicity, neither rankings and/or recognition by unaffiliated rating services, publications, or other organizations, nor the achievement of any designation or certification, should be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if MFT is engaged, or continues to be engaged, to provide investment advisory services. Rankings published by magazines, and others, generally base their selections exclusively on information prepared and/or submitted by the recognized adviser. Rankings are generally limited to participating advisers. No ranking or recognition should be construed as a current or past endorsement of MFT by any of its clients. ANY QUESTIONS: MFT’s Chief Compliance Officer remains available to address any questions regarding rankings and/or recognitions, including providing the criteria used for any reflected ranking.
Historical performance results for investment indices, benchmarks, and/or categories have been provided for general informational/comparison purposes only, and generally do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results. It should not be assumed that your MFT account holdings correspond directly to any comparative indices or categories. Please Also Note: (1) performance results do not reflect the impact of taxes; (2) comparative benchmarks/indices may be more or less volatile than your MFT accounts; and, (3) a description of each comparative benchmark/index is available upon request.