Paid to Wait

Dividend payments are becoming more common, even in groups not known for them. That should benefit long-term investors

By Joseph Lisanti

Despite some recent strength, stocks have been meandering for much of 2005. That may cause people who enjoy relentless action to become nostalgic for the bubble years. For traders, this market has been downright dull.

Perhaps a few people thought that 2003's 26% advance in the S&P 500 was the start of a new string of vigorous moves. But we suspect a run of five consecutive years of double-digit percentage gains in the index, like the one that began in 1995, won't be seen again soon.

Even so, we believe that the current stock market presents some opportunities for the patient long-term investor. As corporate earnings continue to climb, the restrained price action creates more attractive valuations in many high-quality stocks. And corporate boards appear more inclined to boost dividends when the market is treading water, perhaps on the theory that investors are more likely to hold on to shares that provide at least some return. We also credit the lower tax rate on ordinary dividends for the recent renaissance in payments to shareholders.

Even technology companies are getting into the act. Tech stocks have never been known for their dividends, but that may be changing. Four of the nine stocks in the S&P 500 that have initiated dividends so far this year are technology issues.

As a result, 26 of the 80 stocks in the S&P 500 information technology sector now pay a dividend. With only 32.5% of the stocks in the sector paying dividends, tech still has a long way to go to match the 76.8% of issues in the "500" that make regular shareholder payments. But dividend investors should be encouraged that progress is being made.

A quick check of our buy and strong buy recommendations shows that, as of June 15, 63.9% paid a dividend and a total of 26.5% had yields higher than that of the S&P 500. Even patient investors like to be paid to wait.

Lisanti is editor of Standard & Poor's weekly investing newsletter, The Outlook

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