Dividend-paying stocks: more gains ahead
Dividend investing has momentum and room to grow 鈥� possibly even faster than earnings this year 鈥� despite low payout ratios as companies hoard cash, Chris Leavy,聽BlackRock聽CIO, told CNBC Thursday.
聽Leavy, who advises on聽叠濒补肠办搁辞肠办鈥檚听$275 billion in actively managed equities, attributes his optimism to three things: inflows of only $22 billion last year, compared with more than $100 billion for the past three years for bonds; companies making 12 to 14 times earnings and paying out reasonable dividends; and the growing number of investors dissatisfied with the low interest rate on their savings.
Leavy said a reasonable dividend means you don鈥檛 necessarily have to reach for the highest yields possible. 鈥淵ou want an above-average dividend yield, but you really want to focus on dividend growth,鈥� Leavy said. 鈥淢ost people are going to have a very long retirement. [With] a fixed coupon 鈥� that purchasing power isn鈥檛 going to grow.鈥�
聽He also advises investors to avoid companies with over-leveraged balance sheets. Leavy鈥檚 top picks include global consumer companies like聽Coca-Cola. Investors 鈥渃an ride the growth of the middle class in some of the emerging economies,鈥� he said.
And despite recent cuts, the firm believes dividend payout ratios in the financial sector will go on the rise,聽as is the case聽with聽JPMorgan Chase.
鈥淭he best protection against dividend cutters is to really focus on the long-term growth of the dividends,鈥� Leavy said. 鈥淭hat way you have some margin of safety.鈥�
He noted that the ideal portfolio would include a combination of high-yield, lower-quality bonds and high-quality stocks, whose long-term growth rates are still 鈥渃ompelling.鈥�
