A Martini with Dividends Please...

By Dian Vujovich

Over the last few months we’ve seen all sorts of things soar like the country’s personal savings rate, company layoffs and the prices on many stocks. Although no one knows for sure how long these upward movements will continue, one thing is certain: There are some pretty tempting dividends being paid out these days.

Dividends are those little extras that some companies pay their shareholders. They’re much like the little leftovers a good bartender will provide you with after she’s poured your martini and found she mixed more than that stem glass could hold. It doesn’t happen all the time, but sometimes it does. The same is true of stock dividends: Not all companies pay them. For those that do, they don’t come with any guarantees and their yields may change at any time.

Although market conditions have caused a number of companies to slash or simply cut out paying dividends all together, there are still a number offering them. Many from large, multi-national companies we all know the names of like Pfizer (PFE) or Kraft Foods (KFT).

The enticing thing about today’s stock prices is when prices are low, dividend yields can look mighty attractive. Pfizer’s yield when the stock closed on Friday (5/15/09) at $15.01 was 4.2 percent. Kraft’s $24.80 closing price offered a yield of 4.6 percent.

That’s good money and reinvested over time can be handsomely rewarding. From Shannon Zimmerman’s book “The Secret of Dividends,” she wrote: “”Between January 1926 and December 2006, 41 percent of the S&P 500’s total return was due not to the price appreciation of the stocks in the index, but to the dividends its companies paid out.”

Another study revealed that between 1980 and 2005, the dividend paying companies in the S&P 500 Index outperformed non-dividend paying companies by more that 2.6 percent per year.

The data is compelling as is the timing for investigating dividend-paying companies

If research isn’t your thing, Morningstar’s FundInvestor recently highlighted four dividend-focused mutual funds. They included Vanguard’s Equity-Income fund (VEIPX); T. Rowe Price’s Real Estate fund (TRREX); Eaton Vance’s Dividend Builder (EVTMX); and the Thornburg Investment Income Builder (TIBAX).

Whether you’re into building a portfolio of individual stocks or prefer stock funds, companies paying dividends could provide an extra belt that could serve and your future fortunes you well.

-30-