Newspaper article The Christian Science Monitor

Savvy Investors Back in Hunt for Dividends

Newspaper article The Christian Science Monitor

Savvy Investors Back in Hunt for Dividends

Article excerpt

Dividends are suddenly in favor once again - both with investors and Wall Street.

Nearly two decades have passed since these cash payments to investors, taken from a company's profits, were considered as key to a stock's value. Back then, many investors sought out stocks of certain companies, such as utilities or banks, just to gain the dividend.

But along came the 1990s when growth-oriented stocks became the rage and - poof! - dividends dwindled. Payouts became smaller and less common. What counted became "price appreciation," with stock gains in effect hidden within the share price. Many companies, in fact, used profits not for dividends but to buy back stock to help drive up share prices.

Part of the reason for this trend involved taxes. Dividends are taxed annually at regular income-tax rates, not lower capital-gains rates that investors pay only when they profit from selling shares. In addition, dividends are somewhat suspect since they are perceived as being taxed twice - once at the cooperate level where profits are taxed, and then again at the individual level.

But in today's bear market, dividends are back, or at least back more than they were a year or so ago. Prominent companies boosting or promising higher dividends include Clorox, Coca-Cola, ExxonMobil, Washington Mutual, and Johnson & Johnson, which pays out $2.32 a share annually. Utility, financial, and commercial real estate firms also offer substantial dividend payouts.

"More companies are paying dividends or are willing to boost their dividends than in recent years," says Joseph Lisanti, a senior editor at Standard & Poor's Corp. and coauthor of "Dividend-Rich Investors."

In August, Mr. Lisanti says, some 90 companies increased dividends, compared with 65 in August 2001. In July, 131 firms boosted dividends, up from 100 in July 2001. This represents the first back-to-back months of dividend increases since March and April of 1998.

The reasons dividends are popular again are obvious, he says. If an investor can receive a 3 or 4 percent return in the form of dividends, plus a 2 or 3 percent return on appreciation, their total return would be well ahead of most Treasury-bond, money-market, and CD yields. …

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