At the upcoming Federal Open Market Committee meeting on April 29, the Fed is expected to cut its federal funds rate by another quarter point, to 2%. These days, I can’t even find any 6-month CDs that yield more than 3.5%. In such unyielding times, a safe place to park extra cash may be in dividend-paying stocks.
The basics of dividends were explained in a previous entry. It is not always easy to discern between a risky stock that boasts a high dividend just to attract investors and stock in a company that can genuinely has free cash flow to pay back to investors. Furthermore, decent dividend-paying stocks tend to be larger-cap companies that probably won’t be seeing explosive growth, but pay off in the longer term.
Here are some of my personal picks for attractive dividends, intrinsic value, and stability.
- Linear Technology (LLTC)
- Southern Copper (PCU)
- Alliance Resource Partners, LP (ARLP)
- DPL Inc. (DPL)
- Diamond Offshore Drilling (DO) – Just declared a special dividend for shareholders as of May 2; I wouldn’t rely on them in the long term.
Dividend reinvestment plans (DRIPs) are offered by companies as a way for shareholders to reinvest their dividends and directly purchase more shares with no commission cost. It is a good way to let a retirement account run on auto-pilot, but discount brokers charge so little for commission these days that if you are an active trader, it may better to direct the dividend investment yourself.