Author: Gary Ashton
Estimated read time: 3 minutes
Publication date: 24th Jun 2019 09:42 GMT+1
A low and falling interest rate environment can be very challenging for investors dependent on income from their portfolios to meet spending needs. The market is expecting the US Central Bank, also known as the Federal Reserve Bank, to start cutting interest rates later this year. Pushing down short-term interest rates and long-term bond yields may help consumers, but it hurts savers. Recently Bloomberg reported that there is 13 trillion dollars’ worth of global debt with a yield at or below zero and 40% of global bonds now yield less than 1%.
With such poor returns in the bond and credit market, what are income-seeking investors supposed to do? One alternative may be to look at stocks that pay dividends. We identify the three stocks in the Dow Jones Industrial average that currently have the highest dividend yield, which is the annual dividend per share divided by the price per share. We examine the stocks from the Dow because these are household names and established companies. When investing in individual stocks, as opposed to funds, it is crucial to have confidence in a company’s ability to maintain or increase its dividend payout.
Finscreener.com has an excellent tool to help investors assess dividends. Looking at Exxon Mobil (NYSE: XOM), Finscreener.com shows that the stock currently has a dividend yield of 4.63%, considerably better than the 10-year US Treasury Note paying around 2%. Equally important is a three- and five-year track record showing dividend growth rates. In this case, Exxon’s dividends have increased by 3.32% in the last three years, and 4.59% in the previous five years. Finally, Finscreener.com shows you how the stock compares to its industry peers, the S&P 500 and US markets in general. In the case of Exxon, the stock has a dividend yield that is better than 92% of the shares in the S&P 500 and a 5-year dividend growth rate that is better than 76.92% of energy industry peers.
Two other Dow stocks that have respectable dividends are Verizon Communications Inc. (NYSE: VZ) with a dividend yield of 4.18% and International Business Machines Corporation (NYSE: IBM) with a dividend yield of 4.8%. Use Finscreener.com to examine the dividend features of other companies.
It is increasingly difficult to find acceptable investment income in a low and falling global interest rate environment. For example, the yield on the US 10-year bond is currently around 2%. With US inflation at 1.8%, that gives a real yield of just 0.2% and even that could disappear if inflation ticks up in time. One alternative is to look at relatively inexpensive stocks that pay acceptable and growing dividends. Finscreener.com has the tools investors need to find investments that are right for them.
Disclaimer: Gary Ashton is an experienced financial consultant who writes for Finscreener.com. The observations he makes are his own and are not intended as investment or trading advice.
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