Income Investing

The seller's market for bonds favors dividend-paying equities, but investors need to remain disciplined and avoid overpaying for quality.

Last November, I advised income investors to favor AT&T (NYSE: T) a traditional dividend paying stock, over shares of its iPhone partner Apple Inc (NSDQ: AAPL).

By any measure, 2013 was a great year to own stocks. It was also an exceptionally bad time to bet against the United States of America. And that remains the case as we open the page on 2014.

Taper talk is rife again in the financial media. And the all-too-familiar consensus is still that the Federal Reserve will abandon cheap money in the near future, driving up interest rates and sending dividend-paying stocks plummeting.

At its core, the stock market is about people. The numbers offer clues to the odds of company’s success. But as an analyst for nearly 30 years, I’ve found keeping tapped in to the market mood is no less essential.

Don’t believe everything you hear. The odds are still heavily in favor of enough Democrats and Republicans joining forces to prevent the first bona fide US default since the government operated under the Articles of Confederation.

Investors shouldn’t automatically assume that dividend-paying equities are inherently safer than tech stocks or other cyclical fare. When an income-oriented stock cuts or eliminates its dividend, investors not only suffer a diminution of income but also a significant loss of principal during the subsequent selloff. Understanding a company’s underlying business and its growth prospects are essential to separating the winners from the losers.