Is it a good investment strategy to go long on "boring" companies (AT&T for example) and keep them around just because of their dividends or would it be better to trade more frequently companies that don't necessarily offer dividends? Maybe a mix of the two?
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1For what it's worth, if you decide to invest in high dividend stocks, there are a few indexes (and associated index tracking funds) that can help. VIG and VYM (ETFs managed by Vanguard) come to mind as good examples, as well as the indexes that they are based upon.– Eric FleischmanCommented Sep 22, 2012 at 15:49
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4 Answers
Like almost all investing question: it depends!
Boring companies generally appreciate slowly and as you note, pay dividends.
More speculative investing can get you some capital gains, but also are more likely to tank and have you lose your original investment.
The longer your time horizon, and the more risk you are willing to take, then it is reasonable to tilt towards, but not exclusively invest in, more speculative stocks.
A shorter horizon, or if you have trouble sleeping at night if you lose money, or are looking for an income stream, would then tend towards the boring side.
Good Luck
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@sdg - thank you for your answer, it makes sense. What I have a hard time figuring out is when to sell a certain stock, even more so a dividend paying one.– user427Commented Apr 23, 2010 at 17:28
You might want to look up Dividend Yield Trap. Many stocks with high dividend yields got that way not because they decided to increase their dividend, but because their prices have dropped. Usually the company is not in good shape and will reduce their dividend, and you're stuck with a low-yield stock which has also decreased in price.
Future tax increases on dividends are likely. The Wall Street Journal says. "The millions of Americans who receive dividend income ... need to begin adjusting their investment strategy accordingly." (ref)
"Last week the Senate Budget Committee passed a fiscal 2011 budget resolution that includes an increase in the top tax rate on dividends to 39.6% from the current 15%—a 164% increase." ... "You can expect fewer businesses either to offer or increase dividend payouts."
I had read a book about finance, and it had mentioned that you can gain big profits from investing in the best companies in the most boring markets, like the funeral business for example. These markets are slow growing, but the companies pay a good dividend. Many books recommend investing in dividends because of the compound growth and stable income. Remember that at the end of the day, you should put the same amount of research into buying a stock as you would buying the entire company. With that being said, you may find a great company that may or may not offer dividends, but it should not be of great significance since you feel you are buying into a great company at a fair price. Though dividend growth is a great tool to use to see if a company is doing well.
