Oil prices have consistently been in the range of $45-$55
per barrel for the past one year. In November, the commodity’s price crossed
$58. The crude price chart of oilprice.com shows that on Dec 8, West Texas
Intermediate (WTI) oil traded at $58.35 per barrel, close to $59.05 — the
highest since mid-2015. A number of factors have propelled this positivity.
These include the OPEC-led production cut extension, lower inventory overhang,
and rising demand.
In spite of these aspects, it’s difficult for oil prices to
reach 2014 levels. To avoid the repercussion of price slump it is necessary to
use tools that give a steady flow of income, growth, and value. Therefore,
dividend stocks can respite from extreme downsides.
The popularity of dividend stocks among investors is not
unjustified. These stocks not only provide higher income in the current
low-rate environment but also offer cushion against equity market risks.
Historically, dividend stocks are less volatile than
non-dividend stocks. They are also considered to be outperformers over the long
term. These stocks provide opportunities to create wealth as dividends
generally act as a hedge against economic uncertainty. These stocks provide
downside protection by offering considerable yields on a regular basis.
Another factor to consider while picking dividend stocks is
to decide whether to choose low-yield, consistent dividend-paying stocks or
high-yield stocks that can rake in fast cash but are not reliable. It is up to
the individual investor to determine a stock according to their needs, but it
is always safe to select a steady performer with strong fundamentals. Investors
must also diversify their portfolio to reduce risk.
Dividend yield is calculated as (dividends per share
[annualized]/market price per share) x 100. This is very helpful in comparing
stocks belonging to the same sector or industry. The stock with higher dividend
yield is likely to produce better returns.
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