During periods of low yields and market volatilitymore than a few experts recommend dividend stocks and funds. This may sound like good advice, but unfortunately, it is often based on misconceptions and anecdotal evidence. It is time to take a closer look at the six most common reasons why advisors and other experts recommend dividends and why, based on these reasons, such recommendations are often unsound advice.

Dividends are a good income-producing alternative when money market yields are low. Taking cash and buying dividend stocks isn't consistent with being a conservative investorregardless of what money markets are yielding. Additionally, there is no evidence that money market yields signal the right time to invest in dividend-focused mutual funds. In fact, money market yields were anemic throughouta year that is also one of the worst periods for dividend-focused funds in history.

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Many advisors also call dividends a good complement to other investments during times of high volatility and low bank yields. In an October 22, article, financial guru Suze Orman recommended the following dividend funds: DVYWisdomTree Total Dividend NYSE: Dividend companies are more stable and better managed.

It is generally believed that companies that raise their dividends over a long period have solid market positions and strong cash flow. As a result, the stocks' total return is likely to outpace other stocks. It's also common to hear the argument that dividends tend to hold companies to a certain standard of financial discipline and that, as a result, these companies budget more carefully and avoid wasteful projects out of fear that shareholders will punish the stock if it fails to return profits to its investors.

It's easy to pick a "solid" stock in retrospect but it is impossible to pick a company today that will meet this statement moving forward. Sure, if you had purchased Coke in …but what about today? In we would have said that General Electric NYSE: GE and AIG NYSE: AIG were stable and well-managed dividend companies.

Would we say the same in ? What about in the future? The notion that dividend-paying companies are held to higher standards does not bear out.

Look no further than the financial industry. Byit was clear that AIG and others such as Freddie Mac, Fannie Mae, Bank of America, Bear Stearns and Citigroup were far from being financially disciplined companies, despite that fact that they were all long-time dividend-paying companies.

As it turns out, dividends aren't much of an indicator of the financial discipline or the quality of a company's management. You can count on dividends from solid companies.

Many people believe that it's rare for a solid company to suddenly reduce or rescind its dividend payment. BACGeneral Motors, Pfizer NYSE: PFE and GE, have either suspended or cut their dividends.

Unfortunately, it is a lot easier to identify companies that had a solid record than to identify companies that will have a solid record going forward. It is impossible to predict which "solid" companies today are going to be on shaky ground tomorrow.

There is no certainty or stability in future dividends. The idea that dividends allow you to get paid to wait suze orman stock trading make sense. It is the total return of your portfolio that matters, not the current who makes more money civil engineer or architect. Throughout andcompanies were cutting or suspending their dividend payments at record levels, proving that there is no guarantee for those who buy in to these companies.

At that time, Freddie Mac had a dividend yield of 4. Dividend stocks provide upside potential and downside protection. A SPDRUniversity brochure states that "Dividends provide a stable source of income that can help partially offset market price depreciation that occurs in turbulent markets. Dividends provide very little - if any - downside protection during market corrections.

For example, the Fidelity Dividend Growth Fund was down Focusing on dividends, which provided less returns than capital appreciation, makes little sense, especially since the dividend focus is just as risky. Korea stock market hanjin tax treatment makes dividend stocks more attractive.

This misconception seems to imply that dividend stocks are more attractive investments since they are taxed at a preferential rate.

Obviously, the lower 100 accurate forex indicator is better than the normal income rates but what does it really mean? Does it mean you should avoid dividends in tax-deferred accounts since they are less attractive? Of course it doesn't.

Then why should the tax treatment warrant dividend investments more attractive than capital gains? It doesn't, which is shown by the lack of any noticeable bounce in when the preferential tax law free ninjatrader forex feed implemented.

We need to remember that the tail should not be wagging the dog. After-tax returns are important, but taxes should not drive your investment decisions. Dividend-focused investing is ideal for retirees and conservative investors. Trading the forex gap October 5,article in the Wall Street Journal stated that "Most types of fixed-rate bonds don't provide any protection against inflation and can lose value when investors are worried inflation will flare.

Rising dividends, along with any appreciation in ebook belajar trading emas online share price of the company paying them, offer a measure of insurance against inflation.

This statement is incredibly misleading. First, if you want a bond that protects against inflation, you can buy an I-bond instead of taking equity risk.

Secondly, all equity investments provide a measure of protection against inflation, not just dividend stocks. No one ever said you the rates of binary options only have one investment.

If you are a conservative investor, you can simply create a portfolio of bond funds and how to buy options on etrade little bit in a stock fund.

The idea is to create an investment portfolio, not an investment collection. Each investment in the portfolio should work with the others to achieve a goal.

This works much like the ingredients in a recipe, which come together to create a great dish.

Suze Orman's 5 Tips for Investing in the Stock Market | Stock market, Investing and Safety

Why are dividends a better way to generate income than capital gains? Capital gains are not a sure thing, but neither are dividends. And there is simply no way to know which stocks will continue to be "solid" in the future.

Conclusion Dividends are absolutely an important part of the investment equation. Yet there is no empirical evidence that focusing on dividends is a wise decision. Actually, Miller and Modigliani received the Nobel Memorial Prize in large part for their paper, "Dividend Policy, Growth, and Valuation of Shares," in which they found that dividends are irrelevant to a company's value "irrelevant" is their word, not mine.

On one side the media is dishing out long-lived misconceptions about dividends. On the other side, the Nobel winners are saying dividends are "irrelevant" to stock values. I'm not sure about you, but I know which one of these two groups I'm going with. Dictionary Term Of The Day. A measure of what it costs an investment company to operate a mutual fund. Latest Videos PeerStreet Offers New Way to Bet on Housing New to Buying Bitcoin?

This Mistake Could Cost You Guides Stock Basics Economics Basics Options Basics Exam Prep Series 7 Exam CFA Level 1 Series 65 Exam. Sophisticated content for financial advisors around investment strategies, industry trends, and advisor education. Here are five common misconceptions about dividends that are important to know.

Understanding dividends and how they work will help you become a more informed and successful investor. High-dividend stocks make excellent bear market investments, but the payouts aren't a sure thing. Discover the top five dividend-paying oil companies for and what factors contribute to their ability to continue dividend payments.

Companies have been paying dividends to their shareholders since the s and have given investors good reason to hold onto their shares for long time periods.

For many investors, dividends Learn how to differentiate between dividend yield and dividend return, and see why dividend yield is the more popular rate Find out if stocks can pay dividends monthly, and learn about the types of companies most likely to do so and how monthly The purpose of dividends is to return wealth back to the shareholders of a company. There are two main types of dividends: An expense ratio is determined through an annual A hybrid of debt and equity financing that is typically used to finance the expansion of existing companies.

A period of time in which all factors of production and costs are variable. In the long run, firms are able to adjust all A legal agreement created by the courts between two parties who did not have a previous obligation to each other. A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation.

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