I recently had dinner with my dad, and the topic of the low interest rates and bond yields came up in our discussion. Being retired, my father was really bent over backwards on the historically low yields available on bonds and fixed-income securities. You see, my dad has never really had a liking for the stock market, saying it is way too “risky” for him.
But with the five-year yield on the U.S. Treasury at a mere 1.05%, he was worrying about what he was going to do because he essentially lives off the interest on his investments. He got so desperate to actually seek the 3.30% yield that was available on the thirty-year bond.
Anyway, our discussion led to the idea of perhaps buying some dividend paying stocks for their higher yields and preferred tax treatment. My dad was open to this. We talked and talked, but in the end, he just did not feel comfortable about dividend paying stocks because of the risks they entail. Dad has always been about real estate investments, and he has made good money through them.
So while there are many seniors currently facing the same situation as my dad, the difference is that many have decided to take the bold move into dividend paying stocks.
Take a look below at the Dow Jones Industrial Average (DJIA), up over 17% this year as of last Friday. Not only have investors received some impressive capital gains from these dividend paying stocks, but the income stream has also been inviting, with the average dividend yield on the 30 Dow blue chips currently sitting around 2.71%. (Source: indexArb web site, May 31, 2013.)
For the income investors, the search for safety has been the ongoing theme this year, which has driven up dividend paying stocks.
The chart for the Dow Jones Industrial Average is featured below:
Chart courtesy of www.StockCharts.com
As I mentioned, the shift this year into dividend paying stocks was more attractive given the dividends on many of these stocks, which are attractive versus the historically low yields available with bonds.
The Federal Reserve has created the investment environment for these dividends to happen.
The top-five dividend paying stocks at this juncture, based on their dividend yields, are AT&T Inc. (NYSE/T), Verizon Communications Inc. (NYSE/VZ), Intel Corporation (NASDAQ/INTC), Merck & Co., Inc. (NYSE/MRK), and Pfizer Inc. (NYSE/PFE). But be warned that the higher yields may have more to do with the company’s prospects than the quality of the company.
Ultimately, you cannot go wrong if you stick with the proven blue chip dividend paying stocks in the DJIA, which have long proven to be the “Best of Breed” within their sectors.
Top blue chips include: The Boeing Company (NYSE/BA), General Electric Company (NYSE/GE), Johnson & Johnson (NYSE/JNJ), The Coca-Cola Company (NYSE/KO), McDonalds Corporation (NYSE/MCD), The Procter & Gamble Company (NYSE/PG), Wal-Mart Stores, Inc. (NYSE/WMT), and Exxon Mobil Corporation (NYSE/XOM).
Now, if only I can convince my dad—maybe next year.
This article With Bond Yields So Low, Reluctant Investors Are Now Making the Move into These Stocks was originally published at Investment Contrarians