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As Earnings Slow, Dividends Pick Up the Slack

Contributed by mm | July 10, 2005 4:52 PM PST





I love dividend stocks.

From New York Times:

In the first three months of the year, corporate earnings grew by less than 14 percent while dividends increased by almost 16 percent. In the second quarter, dividends jumped by nearly 13 percent, or almost double the estimated rate of profit growth.

Dividends typically have grown faster than earnings only in economic downturns, like the one in 2001. During such periods, it's typically not a case of dividends accelerating but rather of earnings slowing faster than dividends, said Jeffrey N. Kleintop, chief investment strategist for PNC Advisors in Philadelphia.

"The fact that this is happening midway into a business cycle is really something," he said.

What does it mean? Because dividends compensate investors while they wait for equity prices to appreciate, investors are being paid more to hold stocks, and more of us should be willing to do so.
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