Since 2008, when the Federal Stockpile slashed interest rates to zero and then kept them there indefinitely, dividend-paying stocks have happen to one of the most effective ways to earn a guaranteed rate of interest that amounts to more than peanuts. As of 2015, bank investments such as kale markets and certificates of deposit (CDs), which used to be good for at least a 5% rate of return, still pay next to nothing; flatten 1% interest is considered generous for a CD. Dividend stocks, however, regularly pay 6% or more, in some cases.
Why Investors Judge Dividend Stocks
For an investor looking to receive steady interest payments on $10,000, dividend-paying stocks are the obvious dissolving. By locating a company that pays a 6% dividend, the investor can receive a quarterly dividend check for $150, and he pay-offs on any increase in the stock itself. With a CD paying 1%, by contrast, his quarterly interest is a measly $25, and he has no additional way to gross money on the investment.
The challenge comes when a company suspends its dividend, which is not a rare phenomenon. For an investor who judge a stock primarily for the dividend, a suspension of this benefit poses a conundrum of whether to sell the shares. The most discerning way to make this decision is to determine why the company is suspending its dividend and the investor’s motivation for holding the stock.
The Reason for the Intermission
Companies suspend dividends for different reasons. Sometimes it is a
The Investor’s Motivation
Investors choose dividend stocks for their guarantied regular income, but often, that is not their only motivation. If a stock has a good growth outlook and is well-positioned to put on the market strong returns in the near future, a dividend suspension may not be a good reason to sell. Dividends effectively add to a stock’s earns; a stock generating 12% annual returns and paying a 3% dividend has effective annual returns of 15%. An investor who projects a commonplace to grow at 20% over the next year should not dump it just because the company suspends a 3% dividend. Unvaried without the dividend, the stock is beating the market, and an equal or better substitute is difficult to find.
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