tn_invest. what is the difference in dividend yield and growth in value. do some stocks pay dividends plus grow in value? I will have to check that out. thanks for the info.
obgyn65: where do you find municipal bonds? website, etc.?
The 3 year growth rate is how much those dividends have grown over the past 3 years. Sorta like a COLA or % payrate increase. Unlike a CD, where the rate is fixed until maturity, some stocks will actually increase their % payouts over time. Think of it as an annual pay raise to the owners of the company.
Example (this is hypothetical, but this sort of thing happens a lot so it makes for a pretty good example of what might happen)
Stock price = $30
annual dividend = $1 per share (that's a 3.3% dividend yield). For every share you own, you will receive $1 per year.
The 2nd year you own it, the board of directors decides to increase their dividend payout from $1 per share to $1.05 per share. That extra nickel per share represents a 5% dividend growth.
In the 3rd year, they increase the dividend payout to $1.11 per share per year. That would be a 5.7% increase.
In the 4th year, they increase the dividend again to $1.20 per share, per year. That would be an 8% increase.
Those 3 increases averaged about 6.2% (average 5%, 5.7%, 8% = 6.2%).
Your income would now essentially be $1.20 per share. Based on your original $30 per share price, that represents a yield of 4% (dividing your $1.20 income by your $30 purchase price = 4%). That's a pretty nice income increase.
A lot of CDs would simply be paying you $1 per year with no increases, whereas a lot of stocks increase their dividend payouts over time.
It's not a true apples to apples comparison, because a couple HUGE things to remember: 1. Dividends are not guaranteed and some companies have been known to stop paying them (happened a lot with bank stocks over the past few years), 2. The stock price ($30 in our example)
will fluctuate, and can go down whereas a CD is insured.
In my gut, I think it is still a good idea for conservative investors to buy dividend paying stocks.
I bought Procter & Gamble back in the late 90s for about $4,000. They paid me $57 that year in dividends (that's about 1.4%). Today, they pay me $210. Compared to what I paid, that's about 5.1%. Sure, my $4,000 investment has fluctuated through the years (at one point with the dot.com crash, it was only worth about $2,800). However, they never stopped paying that dividend so I kept it. I didn't reinvest my dividend and buy more shares, but if I had let them compound, I'm sure I would have a lot more shares and a lot more income (the dividend is based on the # of shares you own). By the way...today my $4,000 is worth about $6,000. That's not too shabby considering we've had a dot.com crash, a housing market crash, and whatever else you might want to call these past few years.
Investigate some dividend stocks.