A key consideration before buying dividend-paying stocks is whether they can sustain long-term yields.
Adding dividend-paying stocks to a portfolio is one way to navigate the bearish sentiment. Historically, these cash-flowing securities tend to outperform their counterparts during economic downturns, said Morningstar's Susan Dziubinski in aon Tuesday. Dividend-paying stocks experience less volatility because investors often hold on to them for their yields. They also tend to have stronger balance sheets and better cash flow, which enables them to make shareholder payouts.
He noted that US stocks tracked by Morningstar, which had wide moats in the past three years, were not only least likely to cut down on their payouts but most likely to increase them. The opposite was true for companies with no competitive advantage, or moat: they were most likely to cut their yields. Dan Lefkovitz, a strategist at the financial services firm, came to the same conclusion after conducting a 2020 study that looked at a broader range of global stocks.
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