The Allure of Dividend

Want to get a good look at dividend. Undervalued equity investors For one thing, the dividend drops money directly into your pocket. Your stock price does not have to rise to make a profit. Another thing is that any business that extra money will give dividends. This requires them to be very profitable. Investing in profitable companies will breed success as investors buy them at the right price. Finally, once started, the management will not fight her best to raise its dividend. Case in point was Schering Plough Corp. (SGP). The spotted $ 0.22 dividend per share, while in 2003 it was not profitable.

A final allure is the possibility of capital appreciation. Many times, companies with a high dividend yield, has a lower valuation than others. For example, some companies that have a dividend yield as high as 6%, which is higher than the yield of treasury bonds. One such company is Flagstar Bancorp (FBC) with 6.1% dividend yield. The common stock gives $ 1 in dividends, while earnings per share is expected to be $ 1.70 in 2005. Earn as high as $ 4.00 per share in 2003. Assume that FBC can earn $ 1.70 per share for all, then the price can rise above the current price of $ 16.50.

That said, investors should carefully dividend trap. Some companies may be cut. Future dividend due to the deteriorating state of their finances Therefore it is extremely important to predict before investing in them. Fair value of the ordinary shares Dividend is only part of the equation. Case in point was the former AT & T Corp. (formerly traded with symbol T). It used to be north of $ 100 billion are valued and was giving decent dividend. Now it has fallen to less than $ 20 billion, while the dividend is also cut.

Here are several dividend payers who might spike your interest: 

SBC, BellSouth and Verizon Communications. They are all in the telecommunications sector and offer a dividend yield of 4.4 to 5.4%. Share is nowhere to go for the past year to undermine their dominance in the telecommunications market. Due to investor skepticism of competitors

Pfizer, Bristol Myers Squibb and Merck. The pharmaceutical sector has been battered in recent years. Legal problem with Merck Vioxx also creates negative sentiment towards the sector. These three companies have a dividend yield of 3 to 5.6%.

Bank of America, Citicorp and Washington Mutual. The banking sector is known to give generous dividends. Currently they are all a dividend yield of between 3.90% and 4.8%. But with the federal reserve still in the editing mode, I feel that the bank shares may be purchased at an even lower price in the future.