Dividends Ease Market Volatility
But as soon as the market went up, it tumbled more than 200 points Nov. 30 with most of the drop attributed to profit-taking on those same high-flying Internet stocks. Investors seeking stability during such volatile periods may want to consider the other way in which stocks can reward them: through the payment of dividends.
A screen of the 100 companies that make up the <I>DM News<I> Portfolio identified 11 that pay regular dividends to their shareholders: Advanta, Banta, Blair, R.R. Donnelley & Sons, Enesco, W.W. Grainger, Harte-Hanks, LCS Industries, Reader's Digest, Sigma-Aldrich and Talbots.
The key factor in measuring dividends is the yield, or percentage of the stock price that is paid out as an annual dividend. Any stock that yields above the S&P 500 average of 1.6 percent is considered an income stock. Based on yield, Blair pays out 3.2 percent or 15 cents per quarter. R.R. Donnelley pays the highest quarterly dividend of 21 cents per share.
Income stocks are those of mature, stable companies that no longer need to plow back all their earnings to fuel growth. In addition, income stocks tend to have lower price to earnings ratios than growth stocks. Database services provider Harte-Hanks, which pays a quarterly dividend of 1.5 cents, has a P/E ratio of 5.4 while growth-oriented database firm Abacus Direct has a P/E of 55.8.
The long-running bull market has placed much greater emphasis on growth than income, but Jan Holman, vice president of investment services at American Express Financial Advisors, Minneapolis, said dividends will assume importance again.
"Through the 1990s, people haven't been used to even caring about dividends,'' she said. "Who has needed dividends if a stock could go up 30 to 40 percent a year?''
From 1965-1982 when stocks were outperformed by both cash and bonds, dividend income was perhaps the only reason to stay invested. Holman points out that the total return of a stock, by definition, is comprised of income as well as capital appreciation.
"Stocks don't always appreciate,'' she said. "There have been years when stocks have not provided returns to investors so the fact that you're getting a dividend is a benefit.''
Banta, which yields 2 percent and pays a quarterly dividend of 13 cents, will be switching stock exchanges and ticker symbols later this month. Starting Dec. 18, the commercial printer will trade on the New York Stock Exchange under the symbol BN. CEO Donald Belcher said the move will improve the stock's visibility and appeal while providing more consistent price continuity and narrower trading spreads.
Cultural Access Worldwide has changed its corporate name to Access Worldwide Co. and ticker symbol to AWWC. Snyder Communications and Fingerhut have announced share repurchase programs.
Investors who adhere to a growth strategy have a chance to grab one of the year's high fliers at a bargain price when Amazon.com conducts a 3-for-1 stock split Jan. 4. In tripling the number of shares, the stock will maintain just one third of its current value. Based on its Nov. 30 closing price of 192, the split-adjusted price would be 64. Shareholders of record by Dec. 18 are eligible to receive the additional shares.
Portfolio Value: If $1,000 had been invested in each of these companies at the beginning of the year -- for newly public companies when the stock first closed -- the value would be $113,902, an increase of 13.9 percent.