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2 reasons to buy dividend stocks

By Sheyna Steiner · Bankrate.com
Thursday, April 26, 2012
Posted: 5 pm ET

2012 is shaping up to be a record dividend year for member companies on the Standard & Poor's 500 Index.

Reporting on a newsletter from Standard & Poor's senior index analyst, Howard Silverblatt, Maxwell Murphy wrote a blog on the Wall Street Journal website, "Dividend payout of S&P 500 on pace for record year," in which he wrote:

Following 22 dividend initiations last year and eight so far this year, 401 of the S&P 500 now pay dividends, according to Howard Silverblatt, senior index analyst at S&P Indices. In 1977, the earliest year for which Silverblatt provided data, 473 of the 500 paid dividends, a number that fell to as low as 351 in 2001 and 2002.

Silverblatt projects companies in the index will spend at least $279 billion this year on dividend payments, up nearly 16 percent from $241 billion in 2011 and 12.5 percent above the previous record of $248 billion set in 2008. He said this year’s estimate is “under review,” and suggested it will be revised higher.

Despite retail investors' insistence that the stock market is not for them -- at the moment -- the price of dividend stocks may have benefited from the current low-rate environment.

Lower volatility

With the lack of decent returns on the fixed-income side, investors have been on a peripatetic search for yield. Though there's no good answer to the yield drought, dividend-paying stocks have been cited as a decent measure for investors looking for regular income payments -- as long as they can stomach the ups and downs of the stock market, though dividend-paying stocks tend to be less volatile.

On Wednesday, Exxon Mobile declared its second quarter dividend of 57 cents per share. The company won the title of largest dividend payer in the world, Bloomberg.com reported in the story, "Exxon becomes world's largest dividend payer with 21 percent increase."

Exxon will pay $10.7 billion per year to shareholders, the story reported.

Companies have piles of cash

After the cash hoarding years through the recession and bargain-basement borrowing rates, companies are sitting on piles of cash, which means many could increase dividend payouts in the future.

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