To achieve optimum results for our clients, we at Caldwell Trust Company employ sound investment strategies based on our extensive experience, backed by research from our internationally recognized research providers and implemented by our sophisticated, proprietary software. We know that you, our clients, consider our results to be the best indicators of our performance. We know, too, that you appreciate learning some of the underlying principles we follow in formulating our strategies.
Among the time-honored and traditional ways to invest in the stock market, one of the favored approaches is investing in dividend-paying stocks. In a recent article, “Building Wealth with Dividends: three major reasons investors should favor dividendpaying stocks,” the American Association of Individual Investors (AAII) presented three key points:
1. Dividends help level the playing field.
A successful dividend policy can help to align company and investor interests by directing resources toward maintaining and growing dividends rather than increasing management benefits and power. In a nutshell, a winning dividend payout record can be a major indicator of a company’s commitment to its shareholders.
2. Dividends signal confidence in a company’s financial health.
Dividends regularly act as a signal into what management expects the future of a company to look like. Leading research on the performance of dividendpaying companies tells us that a dividend cut can be interpreted as a potential red flag, while a dividend increase likely indicates that management believes in the ongoing earnings power of the business. AAII Dividend Investing is focused on sorting through all of the dividend payers to find the companies that have a winning track record of steady and rising dividend payments.
3. Investors like dividends—especially when bond yields are near historical lows.
With 10,000+ baby boomers turning 65 each day for the next 19 years, the current push toward dividends seems likely to be a long-term trend that will benefit investors who are looking for income as well as price appreciation.
In addition, in sideways or down markets, many investors find comfort in knowing that their stocks’ dividend payments act as a cushion against price declines and overall market volatility — a win-win for income-oriented investors.
A regularly updated chart from Ned Davis Research, Inc. shows exactly how much more valuable dividend-paying stocks have been over time:
Taking these simple principles, we at Caldwell Trust Company have developed a method for choosing dividend-paying stocks. Typically, we first look at a universe of stocks that pay dividends within a predefined range. Within this universe we focus on the fundamentals of a company, looking for the most profitable and healthiest companies that have reasonable valuations. Furthermore, we allow for small- and mid-cap stocks to be present.
We also look at which sectors and sub-industries are outperforming. The result is a varied list of stocks, as shown in the chart. However, we are not locked into these guidelines. Instead, we tailor our investment decisions to the needs of our individual clients.
Our aim in investing this way is to provide our clients, for those who desire it, a way to earn a competitive income stream from their stock portfolios and also to try to achieve risk-adjusted performance. This means participating mostly when markets are doing well and providing meaningful downside protection when markets are acting poorly.
CONCLUSION:
In today’s volatile market, with stocks generally rising and bond yields dipping towards historical lows, stocks continue to look attractive. Before making an investment decision for any stock, it is wise to review a company’s history of dividend payments: these are strong indicators of the present and future health of a company. Stocks with a track record of paying regular and rising dividends can yield long-term benefits in both income and price appreciation.
