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, Tampa and Melbourne, Florida 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. For more frequent updates, follow us on Facebook, LinkedIn, or Twitter.
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