NEWS UPDATES
Benefits of Stock Dividends During Market Volatility - Financial Planning
As interest rates have dropped over the past eight years, investors seeking income sought out the benefits of stock dividends. Companies with healthy cash flows and steady earnings tend to pay consistent dividends to shareholders. Such dividends offer a stream of income usually paid out on a quarterly basis while also offering the opportunity for long-term capital appreciation from the price of the underlying stock.
During periods of increased market volatility, dividends act as a buffer against the uncertainty of companies’ earnings and a changing economic environment. Dividend paying stocks tend to be largely held by institutions and pension plans seeking consistent income in addition to conservative long-term growth.
Management becomes more accountable with dividends since a reliable stream of cash flow and earnings is essential in order to maintain consistent dividend payouts. Companies may also tend to increase their dividend payouts as their earnings and cash flow increases, acting as a hedge against inflationary pressures.
Historically, stocks termed as value companies that have reached their growth cycle tend to be dividend payers, versus growth companies that would rather reinvest their cash back into their companies for further growth. Over the past few years, the amount of cash accumulated by companies after paying all debt and operating expenses has increased, allowing some growth companies, such as those in the technology sector, to pay dividends to stock holders.
Many investors have found that a balance between dividend paying stocks and interest paying bonds tends to generate consistent and reliable income streams, and with conservative growth.
Source: S&P, Bloomberg, Dow Jones
Personal Savings Rate Indicates Consumer Sentiment - Consumer Behavior
Federal Reserve data show that the average consumer checking account balance, a measure of consumer personal savings, has increased in 23 of the past 30 quarters.
Recent data from December 2017 through March 2018, illustrates an increase in the savings rate to 3.1% of disposable personal income as of March 2018. Economists view this increase as a possible pause in economic growth until consumers feel more confident about spending.
The Federal Reserve defines the personal savings rate as a percentage of disposable personal income (DPI), frequently referred to as “the personal saving rate,” and is calculated as the ratio of personal saving to DPI. Personal saving is equal to personal income less personal outlays and personal taxes.
Historically, Americans tend to save more as economic times become more difficult, and tend to spend during prosperous periods. Past slow downs such as in the mid 1970s and the early 1980s saw an increase in the savings rate, a barometer of consumer sentiment. The expansion during the mid-to-late 1990s saw a gradual drop in savings, as consumers spent more confidently as their incomes rose.
Sources: https://fred.stlouisfed.org/series/PSAVERT