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Embracing Dividend Investing in 2010

As we enter 2010, a profound shift in investing strategies is taking place. Retail investors who have been burned by the dot com fallout and the bursting of the real estate bubble are now radically adjusting their investing styles.

While chasing high growth stocks over the last 15 years was exciting (at least while their stock prices were going higher), the market crash that seems to always ensue is finally taking its toll.

Many individual investors continue to keep their money on the sidelines following the bear market of 2008 when the S&P 500 plunged nearly 41%. In past years, these investors would have kicked themselves for missing the subsequent 44% rally that followed in 2009. However, these investors have few regrets after being burned so frequently by chasing these rallies in the past.

Gone are the days when these investors would accept Wall Street’s creative wisdom in order to justify inflated stock prices. Buying a hot growth stock at the right time could make you a millionaire regardless of how expensive the stock may appear. While a few made it rich, many more saw their stock portfolio’s crushed by chasing these elusive returns.

As investors survey the financial markets in 2010, a new investment style is beginning to look more attractive – dividend investing. Of course, it’s not a new investment strategy, but rather a tried-and-true investing strategy followed by financial icons from Benjamin Graham to Warren Buffet.

Investing in solid companies that distribute a portion of their earnings back to their shareholders used to be considered old fashion. Receiving a cash dividend each quarter was considered a nice-to-have, but certainly not a requirement for our investment strategy. After all, the real money would be made as management reinvested that money back into the business and the stock price soared as a result.

Now as investors view the financial landscape in 2010, a cash dividend is becoming almost a requirement. Investors want to invest their money in a company that will not only grow, but will also return a portion of their profits back to their shareholders. As the firm’s revenue grows, so will the stock price and just as importantly so will their dividend payments.

Gone are the days when investors are simply looking throw money at the latest growth story and hope the stock price doubles. Investors are now looking for more realistic returns and they are now accepting the fact that dividends will account for a significant portion of their total returns.

As companies recognize the increasing trend towards dividend investing, we are likely to see more companies initiate dividend payments. And those that currently offer dividends will seek to increase their dividends. It will become increasingly unpopular to continue to reinvest your earnings back into the company without providing a dividend payment that returns a portion of those earnings back to your investors.

Currently, 29 out of the 30 stocks in the Dow Jones industrial index offer a dividend payment of some type. However, it’s only a matter of time before the one holdout, Cisco Systems [[CSCO]], begins offering a dividend. They can certainly afford to with $35 billion in cash sitting on their balance sheet.

Strong companies that offer solid dividend yields like Pfizer [[PFE]], McDonald’s [[MCD]], and Coca Cola [[KO]] will become the investments of choice. These blue-chip stocks may not double overnight, but they offer solid earnings growth and a commitment to pay dividends back to their shareholders.

Filed in: Christian Investing, Dividend Investing

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