2023 Third Quarter Commentary

The role of dividends has been overlooked by stock market investors in recent years.  Particularly outstanding investments these days for their dividend yields are utility companies, whose stocks are among the highest yielding, 3½ to 5%, or even more in some cases.  Utility company stock prices have been battered by rising interest rates, i.e., the highest short-term rates since 2001 and for long-term the highest rates since 2007.

Companies that buy back their own stock instead of paying cash dividends could also be solid gainers, although returns would come from their rising stock prices rather than from cash deposited into your account.  For example, Apple has bought back $400 billion of its own stock over the past five years.  Some managements and corporate boards prefer stock buybacks because they increase the price of the stock as well as the stock option compensation executives and employees receive, often the primary means of compensation for managements and board members, while Apple investors meanwhile are paid a measly 0.5% cash dividend.

This is why it can be better to have cash in hand than dreams, but it would be a sad life indeed without hopes.

The best part of cash dividends is watching them increase over time.  Dividend growth stocks are those with a long track record of dividend increases, many we’ve held quite profitably for years.

​What to do with the cash received from dividends?  We both reinvest the cash and pile it up to reduce your overall portfolio risk, within Fidelity’s cash money market funds, whose interest rate yields are among the highest available and among the reasons why we chose Fidelity to safeguard your account.

Decades ago, market consensus held that stocks were valued for their dividend yields. Further back in history, more than a century ago, investors thought a company that paid no dividend was no good.  While such a belief might be old-fashioned, there’s still a role for dividends in an uncertain world.