Let’s face it, the stock market is in the dumps! How long it will stay down is anybody’s guess. Many investors are left scratching their heads wondering what the heck they should invest in. Still more are holding out and trying to time the perfect entry back into the market. Well, when it comes to a down market finding strong companies that have high dividends can make it to where you are getting paid to wait.
When the stock market tanks the way it has in the last year everything goes down. Whether it is a small cap, mid cap or large cap stock for the most part one and all are down. As the old saying goes, “They throw out the baby with the bath water.” In other words, selling creates selling and nothing is immune.
But with all the selling that has happened there are some Blue Chip darlings that are near 52-week if not historic lows. They are still the same companies only beaten down in price. Most still have strong earnings and thus will have very low price to earnings (PE) ratios. Most of these companies are brand name household companies that have been around for decades. These companies also have a track record of consistent dividend payments and because of the current stock price may be yielding an unbelievable rate.
Take General Electric (Symbol GE: New York Stock Exchange) for example. GE closed at 14.11 on January 14, 2008. Its 52-week high was 38.52 so you can see it has been pounded. At 14.11 GE has a PE ratio of just 6.96 (with 20 and under usually being considered a great stock). Add to that the current dividend of 1.24 ($1.24 per share owned paid in quarterly increments) and the current dividend yield is 8.3% (source: finance.yahoo.com). The company has not changed, it is still an industry leader and it has been around forever. As far as dividends go, I did a search to see how consistent they were on their payments. The only thing they have done in the last ten years as far as the dividend goes is raise it (several times, source: finance.yahoo.com). Now that’s not to say they wouldn’t cut the dividend it if things were absolutely dire but companies usually only cut dividends when they stop making money or are close to not making money, which GE is not.
So you get paid 8.3% to wait for GE to go back up. What saving account is going to offer you that? Not only do you make money on the dividend, but if GE goes back up you realize a gain on the stock price as well. And for as long as you hold GE your yield is unaffected if the stock goes up as you lock in your yield when you purchase the stock. GE is just one example and there are many other big boy companies out there with similar stories.
Is it a guarantee to make you money? No. Is it a sexy, ultra-fast way to make you money? No. But investing is supposed to be about making your money work for you. Sure GE could go to zero (although I think if that happened that aliens would have taken over the world) but chances are that GE and the many other Blue Chips are here to stay and will weather this bear market as they have MANY times in the past.
Now before you run out and buy GE, please know that I was simply using that stock as an example. I am in no way, shape or form telling you to buy the stock. You should ALWAYS do your own due diligence (homework) and consult your financial advisor before you make any stock purchase. But the deals are out there and if you’re going to have to wait anyway, you may as well get paid to do so.