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Dividend Stock Chasers—Beware of 'Rude Awakening'

Are dividend stocks back and should you be investing in them? Dan Genter, president, chief executive and chief investment officer of RNC Genter Capital Management, and Paul Schatz, president at Heritage Capital, shared their insights. (See their stock picks, below.)

The trend of firms boosting their dividends "is going to continue,” Genter told CNBC.

"It’s been driven by earnings, positive cash flow and I think the demand is going to continue.”

Genter said many investors are looking to “smooth out” returns and want to reduce their risk.

“If you can lock out 4 to 5 percent at the beginning of the year, you’re in a very strong position and you’ve got an overall riding demand from the standpoint that the big baby-boomer population needs income,” he said.

“They’re equity-oriented, have to get cash flow—and with low bond yields, it will continue to be attractive.”

Counterpoint: 'Rude Awakening'

In the meantime, Schatz cautioned that people who use dividend stocks as a substitute for fixed-income producers are “in for a rude awakening” — when the market corrects in the second half of the year.

“I think we’re going to peak between 11,500 and 13,000 between Memorial Day and Labor Day,” he said. “People have to be careful.”

Moreover, Schatz said last night’s health bill vote was “bad” for dividend stocks.

“Let’s not underestimate what happened last night with dividend stocks,” he said. “Taxes are going to go up next year and dividend stocks are going to be right in the crosshairs.”

Stock Recommendations:

Genter Likes:

Total S.A.

Abbott Labs

Altria

Microchip Tech

Schatz Likes:

Duke Energy

Merck

Lorillard

Kimberly-Clark

Veolia Environnement

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More Investor Insights:

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CNBC Data Pages:

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Disclosures:

No immediate information was available for Genter or Schatz.

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Disclaimer

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