We are in a bear market, and not all income investments are safe.
Even the bonds soaked up the level this year. Rising inflation and the sharp reaction of the Federal Reserve to it have pushed down bond prices and higher yields.
I strongly believe that dividend stocks are the best means of income over time. Most dividends are charged at a better rate than bond interest rates, dividend payments come quarterly rather than twice a year, and most importantly – their yields increase over time.
Fixed income (like bonds) is just that: Fixed income. It remains the same throughout the life of the investment.
Dividends are related to profits. As long as a company is growing and profitable, its dividends should grow according to these profits. (The decision to raise the dividend he Up to the company’s board of directors, but in most cases they will maintain the dividend growth in accordance with the expected profit growth.)
This is great, but not all dividend stocks are created equal. There is one traditional dividend sector loved by widows and orphans that I recommend you stay away from: toilets!
Avoid dividend stocks
I’ll be honest with you.
I am Hate Services sector.
Once upon a time on a blue moon I find a company in space that I love (like companies with appealing developments of renewable energy). But as a whole, the services sector is full of heavily supervised, slow-growing deaths.
As a point case, let’s look at Accuracy Energy Corp (NYSE: DUK).
DUK is one of the largest service stocks in America and the backbone of many retirement portfolios. At current prices it yields 3.6%. This is not half bad by today’s stock market standards!
But Duke Energy’s dividend growth is mediocre at best, averaging about 3% over the past decade.
Let’s compare to one of my favorite dividend raising machines: a conservative retail real estate investment fund (REIT), Realty Income Corp. (Symbol: O).
The yield of Realty Income is slightly higher and stands at 4.2%. In addition, its dividend growth has exceeded 5.8% per year over the past decade. O is close to doubling the growth rate of DUK.
What would you rather hold? Reit leads with a growing portfolio of 11,200 high-traffic properties spread across more than 1,000 quality tenants … or an electricity company that can not grow much faster than the population it serves.
I think the answer is clear.
Why DUK is a David Dividend
DUK rates are slightly higher than O in our stock rating system at the moment.
But a small excavation reveals what’s going on.
On our growth Factor, Real Estate Income Rates a 88 out of 100and DUK Rank 60. This is huge when you are looking for dividend stocks with months and years of growth potential.
These stocks have both poor value and quality factor ratings, but the REIT fund is penalized in these indices due to strange accounting and the fact that they carry heavier debt loads. Realty Income ratings would be higher here without these accounting quirks.
Precision Energy stock prices are sinking equally into our system because of its low volatility and high momentum. But the ongoing bear market has created a lot of that momentum, with investors flocking to hedge stocks like services. The O rankings in these indices are right behind DUK, so it’s not that the latter is showing crushing market momentum right now or anything.
The Bottom Line: You should always diversify your income portfolio. And I guess it will not kill you to have a stock of service or two in the mix.
But you’re going to be better at REIT and other dividend growth stocks in most cases. These have a much better chance of keeping pace – and even beating – inflation over time.
To ensure profits,
Charles Seismore, co-editor, Green Zone Fortunes
Charles Sizemore Is the co – editor of Green Zone Fortunes And specializes in income and retirement issues. He is also a frequent guest on CNBC, Bloomberg and Fox Business.
Bear Market Dividend Duds — Don’t Buy DUK Utility Stock Giant Source link Bear Market Dividend Duds — Don’t Buy DUK Utility Stock Giant