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Most Investors Looking for Consistent, Growing Dividends

Last week we asked our readers what they consider to be the best long-term investment, and here is what they said:

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Of the 2,377 people who voted by 7:15 a.m. (Central) on Sunday, July 24, 70% view stocks or mutual funds as the best long-term investment. Real estate came in a distant second with 24% of the votes, with gold rounding out the top three at only 3%. There was little love for bonds, which collected only 1% of the votes.

Frankly, I was a bit surprised that stocks/mutual funds were such an overwhelming choice. Since its inception in October of 2004, the Vanguard REIT Index Fund (VNQ) has outperformed the SPDR S&P 500 Fund (SPY) 190.5% to 147.1%, according to StockCharts.com. Looking at a longer time-frame, the MSCI U.S. REIT Index ($RMZ) has gained nearly 362% since its inception in late 1996 while the SPY is up just over 305% over the same period.

Weekly Special Question

Seeing that the vast majority of respondents believe that stocks are the best long-term investment, it seems appropriate that last week’s special question asked what key characteristics investors look when choosing stocks.

Of the 327 readers who responded to the special question, 57.5% said they look for companies that pay a dividend.

From there, the responses become more varied. In second place, garnering just under 16% of responses, investor look for companies with consistent and growing earnings.

In third place, 13.8% of readers look for stocks that are reasonably or undervalued based on some price ratio. Out of this group, over 82% use the price-earnings ratio or PEG (price-earnings ratio to growth) to make their “value” determination.

Investors also look for companies with strong balance sheets, with nearly 10% of readers saying low or reasonable debt was a key consideration for them when picking stocks.

Here is a sampling of the responses:

  • “A company with constant new ideas, building credibility in its name, giving back profits to shareholders by dividends, buying back stock of its company with increasing dividends yearly, keeping an eye on other companies with similar products and being innovative constantly.”
  • “A long record of paying regularly increasing dividends.”
  • “A stellar balance sheet. An easily understandable business model. A competitive advantage. A history of rising and sustainable dividends. A fair price.”
  • “Cutting edge technology, innovation in its industry, also friendly shareholder concerns. The company should stay out of politics and PC activism.”
  • “Dividends that grow, a track record of good management and financial performance, stable industry groups, no ‘flavor of the month.'”
  • “How good is management at doing their job of running the company. Are the financials improving? Does the company have a viable business, not a one trick pony.”
  • “Well-managed companies with market-leading products, a penchant for innovation, solid financials and pays an attractive dividend.”

Want to weigh in? Participate in our weekly member poll, updated every Monday and see the results online at http://www.aaii.com/memberquestion.

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