For long-term investors, the advantages of investing in dividend paying stocks are numerous. Dividend paying stocks offer investors income while they wait for share prices to rise, and can act as a form of portfolio insurance during turbulent markets.
Among the most profitable strategies is to look for stocks that have small payouts that are offering a higher yield due to downward pressure in the markets. Investors looking to this type of security to invest in get more for their money in the form of a low share price, and a higher than normal yield.
In addition, the newly higher yields in these stocks serve to attract new buyers, therefore putting a floor on the price of the shares. This allows investors to both collect dividend payouts while the share price is falling and profit from the stock as it rises in price.
It is important to keep in mind that choosing these types of securities wisely is paramount, as all high yielding dividend paying stocks are not created equal. These types of securities can be a trap for investors who may be lured in by high yields, only to find out that they have invested in a company that has weak fundamentals, and could possibly default on its dividend payment.
Dividend Paying Stocks With Strong Balance Sheets
One of the best dividend paying stocks around today is the Cleveland, Ohio based company Eaton (ETN). This company produces a variety of electrical systems and components, including those used in the aerospace and auto industry.
Eaton continues to be a top brand in each of its markets due to superior technology, and analysts believe that Eaton can continue to gain strength in its end markets going forward despite a weakened global economy. Eaton also has a strong balance sheet adding to its appeal.
On the basis of both yield and earnings, Eaton is considered to be cheap. This stock boasts a current dividend yield of over 3%, with will continue to rise if the stock price falls. Purchasing shares of Eaton in wide scales on the way down is the recommended strategy for this type of high yield play. Watch for buying opportunities at the $34.50 level, where the stock will be yielding 4%, as well as at the 4.25% level of $32.
Look For Smart Acquisitions And Good Management
Another possible play in dividend paying stocks can be found in the paper and packaging company International Paper (IP). Headquartered in Memphis, Tennessee, International Paper is a classic cyclical business which has triumphed in the wake of the economic crisis.
International Paper has taken control of the situation by implementing smart acquisitions and good management. Earlier this month, International Paper completed a $388 million deal with Andhra Pradesh Paper Mills Ltd. Of India in which it acquired a 75% stake in the company.
Operating two mills in India, Andhra employs approximately 2,500 people to make paper and pulp products, and the deal is expected to leave International Paper in an excellent position to serve a rapidly expanding market in India.
With a 4% dividend yield, International Paper is worth considering at present levels. As a fall in share price leads to increased yield, an investors can always take advantage of any price decreases to add to their existing positions. International Paper could be a wise purchase at current prices, and by reinvesting your dividends you can increase your stake in the company while profiting at the same time.