Word: dividends
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Today's REITs are altogether different. They carry half the debt, are far better managed and invest mainly in actual property--not developers' mortgages. The stocks, while no longer cheap, have a lot going for them, including secure dividend yields of more than 6%. The security lies in the federal requirement that REITs pay out 95% of their income. The hefty dividends provide a cushion when the market falls. From March 11 through last week, the Dow Jones industrial average fell 9.8% while REITs fell just 5.4%.. During the four years through 1996, negative average returns were reported...
...conventional measures of Wall Street, the market seems ripe for a setback. Not only are stocks heavily overpriced in relation to corporate earnings--the P/E ratio is now about 19--but the average dividend yield, which measures dividends as a percentage of prices, has fallen to an all-time low of less than 2%. Both gauges suggest the type of heedless buying that often precedes a bust. The public's hunger for shares has led Austin Grill, a chain of Tex-Mex eateries in the Washington area, to offer diners a helping of its new public offering along with their...
...that scare you, though. Much has changed, which is why the yield sank to last week's low of 1.99% without disrupting the bull market. Today companies hold back more of what they earn, opting not to increase dividends but to reinvest in operations or buy stock on the open market. This year, for example, blue-chip companies will report record high earnings but pay out a record low portion of those earnings as dividends (37%, vs. a post-World War II average of 52%).That's O.K., so long as reinvesting and buying back shares have their intended effect...
...would you rather be paid? The dividend is far more certain. There's never a guarantee a stock will go up, even if business is great. With few exceptions, dividends get paid and often raised, especially if business is great. For conservative income-oriented investors, shriveling yields mean greater risks...
...gone are the days when you could easily buy a quality bank or phone stock, live off the dividends and still watch the stock rise. Now, if you crave big dividends, you're pretty much stuck with the tainted tobacco industry or iffy electric utilities. You could choose other stocks, sell them as they rise and live off the gains. Indeed, tax law favors such capital gains over dividend income for most people. But the hitch appears when the stock market reverses or slows, which it eventually must. Then, investors seeking steady income are stuck with a sickly 1 point...