Dividends Are Hot!

GE Capital
GE Capital

The welcome news that GE Capital* will again be paying a dividend is putting a spotlight on an important part of the market: dividend payers.

I know, it was hot last year, but it never went away. You can buy the S&P 500 , which currently yields close to 2 percent, but you can do a little better than that. There are several dividend ETFs that have seen significant inflows this year.

Why? Because investors desperately need income!

My two favorites:

1) SPDR S&P Dividend , currently with a yield of 3.2 percent. This consists of about 85 companies from the S&P 500 that have been increasing dividends for at least 25 years.

2) iShares S&P Preferred Stock Index , with a juicy yield of about 6 percent. This is about 230 U.S. domestic preferred stocks. Preferreds have a higher dividend than common stock, are not as volatile as common, and unlike common stock preferred stock guarantee regular dividends...otherwise it's a default.

One last point on preferreds: what about taxes? Right now it's 15 percent, but the way the law is now at the end of the year it will go over 40 percent — almost triple. If that's going to happen, you can expect to see some accelerated payouts in December. Can you imagine the fit investors will throw if they get paid in January with a 40 percent tax?

By the way: GE* is not alone in increasing dividends. This is a record year. That's right: a record. About $282 billion in dividends will be distributed between the S&P 500 companies this year, well above the $241 billion last year and TWICE the $142 billion in 2001.

Why? Because companies are making money! If you are a cynic, you can say they are not engaging in as much capital spending, are not hiring as much, and are engaging in less M&A activity. So they have to return the cash.

I do not view returning cash to shareholders as a defeatist strategy.


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