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You are here: Home / Articles & Videos / Dividends Part 1

Dividends Part 1

~ Article by Kevin Ellman, CFP ®

Dividends Part 1 with Kevin Ellman CFP®

I love dividends.

I have been a big fan of stock dividends for many, many years.  In today’s investing climate I think dividends are even more valuable. Most people don’t realize that since the 1920s, reinvested dividends make up almost half of the total return for the S&P 500. If you design a portfolio that specifically emphasizes stock dividends that percentage might even be higher.  Please keep in mind that dividends are not guaranteed and it is up to the company BOD’s on whether or not to pay out cash dividends.

At the current time it can be very difficult to earn any kind of decent yield on a high-quality bond portfolio. A portfolio built around high-quality high dividend stocks could easily yield 3% to 4% or 5% each year, depending on the mix.  In any year that would be pretty good, right now it is terrific by comparison.  In 2012 qualifying stock dividends still receive long-term capital gains treatment. This makes the after-tax return even better.

For those people who are retired or otherwise need income from their portfolio, a significant allocation to high dividend, high-quality stocks may be a viable option as the dividends can generate income and provide some potential for that income to keep pace with inflation even if they lose out on stock value.

I like to think of a high dividend stock portfolio as being similar to a rental property.  Assuming that you have a good tenant and are receiving rent on a regular basis, most property owners do not pay a lot of attention to the changing value of the property on a day to day basis. Because they’re receiving steady income they can afford to hold a long-term point of view and wait until the property increases in value before they even contemplate selling it.

This characteristic of dividend stocks encourages investors to adopt the long term view which in many cases can work in their favor.  However, please keep in mind that dividends are not guaranteed.  This approach can be different that is from your average stock investor who may be is checking the value of their portfolio weekly, daily or hourly.

Asset allocation does not protect against loss of principal due to market fluctuations. It is a method used to help manage investment risk. Past Performance does not guarantee future results. This material is for informational purposes only and is not meant as Tax or Legal advice. Please consult with your tax or legal advisor regarding your personal situation. The opinions expressed are subject to change with economic and market conditions. They are not meant as investment advice. Forward looking statements and market forecasts cannot be guaranteed and may not come to pass.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. Comments concerning the past performance are not intended to be forward looking and should not be viewed as an indication of future results.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Wealth Preservation Solutions is not affiliated with Kestra IS or Kestra AS. Kestra IS and Kestra AS are not affiliated with any other entity listed herein.

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This article is for informational purposes only and is not intended as an offer or solicitation for the sale of any financial product or service or as a determination that any investment strategy is suitable for a specific investor. Investors should seek financial advice regarding the suitability of any investment strategy based on their objectives, financial situations, and individual needs. This article is not designed or intended to provide financial, tax, legal, accounting, or other professional advice since such advice always requires consideration of individual circumstances.

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Article written by Kevin Ellman, CFP ®

As a financial advisor for over 25 years, Kevin Ellman provides the full array of financial, estate, and retirement planning services to high net-worth business owners, families, executives, and individuals. He has appeared as a financial commentator on CNBC (Morning Call, Portfolio Make-Over, Make Your Money Work, Power Lunch), and on ABC, and has been quoted in Business Week, CBS Market Watch, Fortune Magazine and The Wall Street Journal. Learn more about Kevin Ellman...

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