Why You Simply Can't Ignore Dividend Stocks in Today's Market

The S&P 500 (SNPINDEX: ^GSPC  ) started out the second quarter by setting an all-time record high, and even after the pullback earlier this month, the index still remains close to its best levels ever. One big reason for that strong performance has come from dividend stocks, which have performed well and given investors the confidence they need to keep the bull market running into a sixth year. As new data from S&P Dow Jones Indices reveals, the first quarter of 2014 was a banner period for dividend stocks, with a record number of companies boosting their payouts to investors.

The latest on dividend growth
The figures from S&P Dow Jones Indices showed a truly staggering number of dividend stocks making increases to their distributions. Fully 1,078 stocks upped their dividends last quarter, toppling a record that had stood for 35 years and representing a 14% increase from last year's first quarter. By contrast, only 102 companies cut or suspended their dividends, which was 27% fewer than in the year-ago quarter.

The amount of money that corporations are paying their shareholders is also stunning. Net dividend increases amounted to $17.8 billion, with first-quarter payouts having jumped 15% from year-ago levels. Moreover, because of the relative weakness in the stock market, the rise in dividend payouts raised the weighted dividend yield of the roughly 10,000 traded stocks that S&P Dow Jones Indices looked at to 2.48%.

What's next for dividends?
Dividends have become almost a required attribute for popular stocks, with 421 of the S&P 500's members paying dividends -- the largest number in more than 15 years. Recently, major companies in the S&P have boosted their payouts, including Procter & Gamble's (NYSE: PG  ) 7% dividend increase earlier this month and a similar 7% boost in the quarterly payout of railroad giant CSX (NYSE: CSX  ) . We're also likely to see some other big boosts in the coming days, as oil giant ExxonMobil (NYSE: XOM  ) typically makes a dividend increase in late April. A big enough increase could make Exxon the biggest dividend payer by total cash distributed in the market.

There are plenty of reasons to stay hopeful about the prospects for even more dividend increases. Payout ratios remained at 36%, falling well below the historical average of 52%. That gives companies more flexibility to raise their dividends even if a future economic downturn temporarily squeezes earnings. Moreover, S&P Dow Jones Indices senior index analyst Howard Silverblatt argued that total increases for 2014 could well set a record, given the quick pace in the first quarter and the track record of many stocks that are likely to boost payouts later in the year.

Investors should continue to look to dividend stocks as a smart way to invest. With their combination of income and growth potential, dividend stocks look especially appealing as investors prepare for more volatile times that could come in the near future.

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

 


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