### Why I’m Interested in Dividend-Paying Stocks
#### Deciding Which Stocks to Buy This Year
When investing, you quickly learn that nothing is set in stone and that guidelines can be flexible. I’ve been pondering which stocks to buy this year and initially decided to follow the Dogs of the Dow strategy. However, as I near the point of making a purchase, I’m reconsidering and exploring alternatives that might make more sense. Here’s what I’m thinking:
First and foremost, I’m still focused on dividend-paying stocks. The idea behind them remains very appealing to me. When choosing from the myriad of available stocks, I look for high-quality companies with robust earning potential that offer a guaranteed rate of return through dividends, regardless of market price fluctuations. But that’s not the only reason I like dividend stocks.
A high dividend yield from a reputable company can be a signal about its market valuation. If a stable company maintains or increases its dividend, a higher-than-average yield might indicate that the share price is undervalued, suggesting a good buying opportunity. The key is to invest in solid companies, not those that inflate their dividend yields temporarily to attract investors. A company’s long-term ability to pay dividends consistently is a sign of financial health, an appealing trait for any investment.
This is why the Dogs of the Dow strategy initially attracted me. It allows me to quickly narrow down choices by picking the highest-yielding dividends among the largest 30 stocks in the Dow Jones Industrial Average. However, nothing in investing is entirely straightforward. Ultimately, you must make your own decisions based on thorough research.
Instead of blindly following this strategy, I decided to delve deeper to understand what I’d be investing in. By visiting the Dogs of the Dow website, I can get the current list of Dog stocks and use Google Finance to gather data. Metrics such as Earnings per Share (EPS), Price to Earnings (PE) Ratio, and Price to Book (PB) Ratio are useful, but I particularly focus on Return on Assets (ROA). ROA provides a clear picture of a company’s efficiency in generating income from its assets.
Looking at the current Dog stocks, I noticed that Hewlett Packard is actually losing money, with negative forecasts for both 5-year earnings growth and 12-month price. This discovery makes me cautious about investing in Hewlett Packard, as it doesn’t align with my goal of investing in solid companies with strong earnings potential.
Given this, I can’t just rely on the Dogs of the Dow strategy without further analysis. There are other dividend-paying stocks to consider, such as the Dividend Aristocrats, which include companies that have increased their annual dividends for at least 25 years. This kind of financial stability and commitment is noteworthy.
Applying the same analysis to the Dividend Aristocrats, I found that Pitney Bowes offers an attractive 12% dividend yield despite some recent struggles. This high yield could be worth considering, provided the company shows potential for recovery, even if growth is slow.
So, I’m asking you, my readers: Do you believe taking a chance on Pitney Bowes over Hewlett Packard is the better choice for my stock selection this year? Are there other stocks on this list that you think merit a closer look?
