In an era of fast-moving tech stocks, biotech takeovers, social media companies going public and banks being revived from the dead, it’s all too easy to forget about the role dividends from stocks pay in terms of total investor return. The reality is that over long periods of time, dividends tend to account for almost half of the total gains – which probably comes as a surprise (it did to me!). Based on some nifty work from Bloomberg-BusinessWeek, they’ve outlined a visual going from 1990-2010 – take a look:
There are numerous factors to consider in selecting the best dividend investing approach with the appropriate risk-adjusted returns. Do you want just high yield stocks? Do you want to focus on certain sectors? Do you want to avoid certain segments of yield investments based on their tax implications? There are numerous ways to achieve a decent total yield on a portfolio, but much depends on the specific criteria that are important to you. For example, MLP investing is one of the best-kept secrets of retail investors for the beautiful combination of both high yield and high dividend growth. However, there are K-1 tax forms required from partnerships and they lose their tax benefit in a tax-sheltered account such as an IRA. Next, there’s always the fixed income approach, but given the Fed’s recent announcement that interest rates are to stay fixed through 2013, it’s unlikely we’re going to see much movement on Treasuries from here and CDs, money markets and saving accounts are currently losing money to inflation.
I’ll have to do a separate post on my current high yield portfolio in my self-directed IRA, but I’d be curious to hear what some of your favorite dividend stocks are that are delivering returns with a suitable level of risk.
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