When both the stock market and interest rates were hitting
bottom last year,
dividend stocks with stable payoutsoffered investors the
best of both worlds: great bargains and high income. Yet
after the market's big rally, many stocks have seen their
dividend yields drop sharply. Do those falling yields mean
that you should get out of your dividend stocks now
before it's too late?
A look at the numbers
A company's dividend yield depends on two numbers: the
amount of its dividend and the current price of its stock.
For the most part, dividend payouts stay relatively constant;
a company might raise or lower its dividend occasionally, but
such moves don't usually happen more than once a year.
On the other hand, stock prices can
fluctuate wildlyover short periods, as we've seen lately.
When they do, they can have a dramatic impact on a stock's
dividend yield, even if the dividend itself doesn't change
much. For instance, compare the yields that these dividend
stocks were paying back in March with what their current
dividend yields are.
Stock
Dividend Yield on Feb. 28, 2009
Dividend Yield on Oct. 29, 2009
Current P/E Ratio
Coca-Cola (NYSE: KO)
3.7%
3.0%
20.0
Novartis (NYSE: NVS)
4.7%
3.3%
15.7
Merck (NYSE: MRK)
6.3%
4.9%
8.2
Colgate-Palmolive (NYSE: CL)
2.7%
2.2%
20.2
Alcon (NYSE: ACL)
3.1%
2.4%
20.9
Avon Products (NYSE: AVP)
4.6% Continued... |