New York, New York (PressExposure) April 26, 2012 -- In a recent Penny Stock Detectives article, co-editor Danny Esposito states that there was a time when term deposits at banks paid interest in excess of what an investor would receive through dividend stocks. This meant that dividend payments were usually well below the interest that was paid out by banks. Esposito argues that, in this historically low interest rate environment, this is no longer the case. The editor reports that investors have found that dividend payments now pay more than interest income from the banks and so have funneled more and more of their investments into dividend stocks.
"Corporations understand this dynamic, which is why dividend payments by corporations are at record highs," notes Esposito. "Corporations want more shareholders, so that their stock price appreciates. They are offering dividend payments like never before, so they can be defined as dividend stocks, because they know that is exactly what investors are searching for."
Although there is risk involved with owning a stock over a term deposit, at least the investor is further compensated, says Esposito. The editor says that this is because dividend payments have favorable tax breaks, which means that after-tax income is greater from dividend payments than from interest income, if the rate of return were the same for both instruments.
According to Esposito, investors will be happy to know as well that, in a bear market (i.e. when the market goes down over a period of time), dividend stocks tend to go down less than the market. In other words, the editor expounds, dividend stocks tend to outperform in a down market.
The reason this occurs, says Esposito, is that corporations offering dividend payments generally have a large amount of cash and have businesses that, even in a recession, tend to perform better than other companies, because of established market share in their industry.
Dividend stocks tend to be more reliable as well, according to the Penny Stock Detectives editor, because corporations won't issue dividend payments unless they are certain they will earn the cash flow to actually pay those dividends, which of course makes them somewhat more secure investments.
As reported in Esposito's article, in this historically low interest rate environment, investors are searching for the type of income they used to get from term deposits at their banks. Instead, dividend stocks have provided this steady stream of income.
Investors also get solid businesses that generate good cash flow-or these companies wouldn't be able to make dividend payments-and companies that outperform during market downturns. Esposito feels that, along with the favorable tax treatments that dividend payments receive, there is a lot to like about dividend stocks.
Published every business day, Penny Stock Detectives researches and analyzes low-priced opportunities in the stock market and individual stock market sectors. Penny Stock Detectives reports on penny stocks, small-cap stocks, micro-cap stocks, high-profit potential plays mostly under $10, and the stock market in general.
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