Shares of dividend-paying companies have soared in recent months, as a surge in corporate profits and earnings has boosted the value of stock-market-linked options.
But some investors worry that some companies will miss their next dividend payment, even though they are still getting an annual payout.
As investors take comfort from a stronger economy, the Dow Jones Industrial Average has risen nearly 30% since January.
And on Thursday, the S&P 500 stock index gained more than 3%.
“If you think that a $10 billion profit is worth $15 billion in dividends, that’s a huge deal,” says Eric Zitzewitz, senior portfolio manager at the U.S. Wealth Management Group in Washington, D.C. “That’s really the kind of thing you can’t miss.
It’s like going from a $200,000 car to a $1 million one.”
The Dow has soared more than 30% over the past year, rising more than 400% since last year.
“It is a very, very bullish sentiment,” Zitzwitz says.
“You can see the whole world, people are getting very comfortable with that sentiment.”
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The Dow’s recent gains have been fueled by a combination of factors, including rising stock prices, better-than-expected earnings and a strengthening U.K. economy.
The U.k. has benefited from rising oil prices and rising demand for car parts.
“A lot of people are looking to buy stocks in the U of A, where they are not paying the market price,” says Zitziwitz.
But many investors aren’t convinced that the Dow is heading in the right direction.
“There’s a lot of good things going on with the U, but there’s a big risk that the price of stocks will continue to be very low for the next year or two,” he says.
For investors hoping to benefit from a dividend payment for their shares, Zitzwiks worries about the possibility of stock prices dropping to levels that could harm their portfolios.
But for those hoping to avoid that possibility, the gains in the stock market have been particularly welcome.
“The dividend payout has been really good for me,” says David Boggs, chief executive officer of Bogg Group in Arlington, Va.
“I’ve been able to save a lot, especially from buying shares, but I still have to pay taxes on that income.”