MONEY MATTERS > And More Money Matters! > MOM 1
By: Paul A. Pouliot
The U.S. economy is slowly improving and investors are once again looking for places to put their money to work. But while the slow pace of economic growth has stymied some investors, it has also created opportunity for others who know where to look.
Higher-quality, larger-cap stocks may be a good place to start. In the era of hard-won yields, these stocks—particularly those that pay dividends—may be attractive to investors with concerns about inflation. Compared with smaller-cap, higher risk stocks that soared during the “recovery rally,” large caps may also more affordable and less risky in today’s markets.
When looking for a dividend-paying stock, research companies with solid balance sheets and strong free cash flow. Don’t focus solely on current dividend yield; you should evaluate whether that yield is sustainable. Look for companies with a long history of maintaining and increasing their dividend payments.
Dividend investing has been rewarding over time. While past performance is no guarantee of future results, dividend-paying stocks have historically outperformed non-dividend payers, and dividend income has historically represented a significant portion of large-caps’ total return.
Adding dividend growers to your portfolio may also help buffer market volatility. The income from dividends can help insulate your portfolio from a drop in stock price when the markets struggle. Reinvesting dividends can also be a cost-effective way to build your position in that stock.
When searching for dividend payers, stock selection and diversification are critical. So, if you are not confident in your ability to select 20 or 30 companies with strong balance sheets and good cash flows, perhaps you should consider a mutual fund and allow the experts do the work for you. Consider speaking to an advisor about which investments might be appropriate for you.
Paul A. Pouliot CFP®, CHFC®, CASL®
Financial Advisor, An Ameriprise Platinum Financial ServicesSM practice, Ameriprise Financial Services, Inc., 116 South River Road | Bedford, NH 03110, Office: 603.296.0030 | Fax: 603.296.0028
Disclaimer: This communication is published in the United States for residents of AZ, CT, FL, GA, ID, KY, MA, ME, NH, RI, TN, VT and WA only and this advisor is licensed only in the states of AZ, CT, FL, GA, ID, KY, MA, ME, NH, RI, TN, VT and WA
This column is for informational purposes only. The information may not be suitable for every situation and should not be relied on without the advice of your tax, legal and/or financial advisors. Neither Ameriprise Financial nor its financial advisors provide tax or legal advice. Consult with qualified tax and legal advisors about your tax and legal situation. This column was prepared by Ameriprise Financial.
© 2011 Ameriprise Financial, Inc. All rights reserved.
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