“Dividends are critical as an offset to inflation in a client portfolio,” he said. “If you can invest in companies with pricing power … they can grow their earnings and then their dividends.”
Quinlan said the status of a dividend will indicate the health of a firm.
“We view the dividend profile as a way to look at the quality of a company, and oftentimes it’s a signal about their future,” he said. “A reduction in a dividend would be perhaps [a signal of] some financial stress while consistently increasing the dividend over time can signal a management team that is confident in results in a company that is performing well.”
He added that divided-paying stocks tend to come from larger and more established companies. Those looking to invest in these types of stocks will do it for their reliability.
When looking for the right investments, Quinlan said that there are options even in the current market.
“We are looking for companies that can perform well through a cycle, not just in good times, but in bad times as well,” he said.
Clarfeld said dividend funds make the most sense in certain areas such as the energy and financial services sectors. Investors and advisors should look for those companies with pricing power and the ability to monitor their profit margins, he said.
Quinlan offered up his suggestions for smart chances in dividend stocks.
“We see opportunities for dividend-paying stocks across all sectors,” he said.
Having said that, there are certain areas that his firm is looking at, in particular the healthcare industry, the energy sector and a few subsets of defense.