Looking for Dividends: Explore Value Stocks
We all know that companies are not created equally. Some companies are in business for hundreds of years and others a few weeks. And there are companies that are challenged by tight profit margins, competition, poor management, dishonest employees or business practices, declining popularity of the product or service, etc. Beyond questions of the quality of a company, we choose stocks based upon several personal factors. Are we seeking income or growth or both from the stocks we are selecting? How long will we own the stock? What sort of risk are we willing to have in our portfolio?
Companies which have publicly traded stock, also called equities, are often divided into three general categories: Value, Blend and Growth. The growth rate of a company, a company’s future plans and the dividend the company pays are all considered when labeling a stock. In order for a company to keep it’s stock value moving upward, the company must typically grow or pay a sizable dividend.
Value stocks tend to be large, mature companies which pay higher dividends. The higher the dividend, the less growth the company will achieve because they are sending a very large portion of their earnings to shareholders in the form of dividends. This leaves very little money to reinvest into the company to make it grow. Value Stocks have in past have paid dividends in the 2.5% to 9.00% range. Dividends are determined by the board of directors and are never guaranteed, but generally remain consistent over time. Some examples of Value stocks are AT & T, Clorox, Main Street Financial.
These are sometimes called Blue Chip Stocks, and are generally less volatile when the stock market fluctuates. The comparative stability of the share prices combined with a good dividend make these companies attractive to conservative investors and investors seeking income from their portfolio.