Playing The Market For Income

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For many people, the ideal stock is one that pays dividends regularly and offers a high yield in proportion to its price. It may not be so glamorous as realizing a fat capital gain from a shrewdly chosen growth stock, it may not be so adventurous as dipping in and out of the market to take advantage of short-term swings, but it can be very satisfying nonetheless. One of life's pleasant experiences is to find a dividend check in the mail every three months, regular as clockwork.

The investor for income is in good company. It is quite likely that more people are in the market for income than for any other reason. And why not? For 16 years—from 1942 through 1957—the common-stock dividends paid out by companies listed on the New York Stock Exchange showed an increase over the year before. In 1958, owners of these common shares received more than $8.71 billion in dividends, only one per cent less than 1957's record total of $8.79 billion. As 1959 ended, it appeared that common-share owners would receive better than $9 billion, a new high and the largest amount ever distributed. All this, too, has been on the general basis of a pay-out of about 50 percent of earnings, or somewhat less than United States corporations were in the habit of distributing prior to World War II.

Investment for income is generally a long-term proposition. It implies stability. And it makes particularly good sense for people who do not expect to become market experts or security analysts. In fact, there are respected authorities who state flatly that the investor who seeks anything more than income from securities must be classed as a speculator, a risky role to play for any but the most sure-footed professional.

Long term, it should be noted, does not mean forever. It does not mean buy-and-forget. Whatever your holdings, you should review them several times a year and stay alert for news indicating whether the prospects are good that your companies will continue to maintain their present level of earnings. Unless you have strong reasons for dissatisfaction with an income stock, however, there is little to be gained by switching. Generally speaking, there is not enough difference in the yield, say, from two good-quality utility company stocks to justify the expense of selling one and buying the other. (Although 100 shares of a stock paying $3 would produce $50 more income annually than one paying $2.50, it would take more than a year to rationalize the commissions and taxes paid to sell the latter and buy the former).

Dividends have their own way of accumulating. Given the steady upward trend of stocks in this century, a well-chosen security will reward the investor who holds it patiently. In even five years there can be a dramatic increase in yield.

The problem of stability is a beguiling one. For many investors it represents the compromise between safety and risk. Safety offers a discouragingly low return. Risk is the privilege of those who can afford it—exhilarating when one has dared and won, but painfully, most truly felt by the loser. Somewhere in between, most investors decide, there must be a sensible course, commensurately rewarding.

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