Income Investing with Dividends

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.

  1. Linear Technology (LLTC)
  2. Southern Copper (PCU)
  3. Alliance Resource Partners, LP (ARLP)
  4. DPL Inc. (DPL)
  5. 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.

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5 Responses to Income Investing with Dividends

  1. tao2death says:

    Interesting choices. Have you also considered PNM, CPL, or BX?

  2. bumpstart says:

    I typically make my picks by either choosing companies I’ve heard about, or by using the NASDAQ stock screener; i enter min parameters for dividends, market cap, cash flow, etc. i’ve been watching BX for a few months now, but their earnings haven’t been very consistent so i don’t know what to think about them. PNM’s profit margins are a little narrow, but CPL looks interesting.

  3. tao2death says:

    Most of these recommendations I get from watching Nightly Business Report. CPL is definitely the most interesting of the bunch. The fundamentals seem sound since Brazil appears to be a lot more stable than in the early 90’s.

  4. bumpstart says:

    yeah the economist had a special report on brazil last week: http://www.economist.com/opinion/displaystory.cfm?story_id=11052873

    i’m betting on PBR right now 🙂

  5. bumscientist says:

    I tried investing in WB for dividends, but that was quite a shaking ride. Dividends aren’t forever.

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