Morningstar.com readers love dividend-paying stocks, if your recent emails in response to my article about the role of dividend payers in a portfolio are any guide.
The thrust of that article was about using dividend-paying stocks alongside, rather than in place of, bonds--especially if you're retired or getting close to it--but I'd agree that income-producing stocks have plenty to recommend them. Dividend producers can deliver yields that are on par with or even better than bonds, along with the potential for capital appreciation. The ability to pay a dividend is also an indication of a company's financial strength and quality: Dividend payers have higher financial health grades, per Morningstar, than non-dividend-payers, and they're also more likely to have moats. Finally, dividend-paying stocks are arguably cheaper than the broad equity universe right now. That's because slower-growing companies in old-line industries are more likely to pay sizable dividends than fast-growing ones, and the former have dramatically underperformed the latter over the past five years.
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Christine Benz does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.