In A Low Return World, Dividend Stocks Are King

You may have missed it amid all the moaning, but the FTSE 100 has enjoyed a bull market run stretching back more than six years.

The UK’s benchmark index of stocks and shares has also climbed to a record high of 7122 in that time. In doing so, it has scaled the biggest wall of worry in stock market history.

But lately, the pace of growth has slowed. Trading at around 6800, the FTSE 100 is roughly the same level it was a year ago.

All Greek To Me

Recent sentiment has been knocked by the Grexit crisis. If a solution is found, the market could quickly fly above 7000 again.

If we get another bout of chaos and uncertainty it could rapidly plunge. Nobody knows what will happen next.

Either way, the longer-term outlook for stock markets looks volatile, as the greatest experiment in monetary history edges to a close.

Easy Money Ends

Nobody doubts that the prices of assets such as stocks and shares have been greatly inflated by more than six years of rock-bottom interest rates and rampant quantitative easing (QE) by central bankers, led by the US Federal Reserve.

Those days are drawing to a close, with the first US rate hike possible as early as September (although I suspect it will be closer to December).

That would force of borrowing costs around the world, hitting emerging markets that have run up large dollar-denominated debts hard.

Print, Baby, Print

QE is still keeping markets buzzing, courtesy of the European Central Bank and the Bank of Japan. And monetary stimulus has fuelled the stock market boom in China, where indices are up 20% this year.

But that can’t last forever.

Both the Fed and Bank of England would be reluctant to crank up the printing presses again, unless markets suffer a total meltdown.

Handsome Dividends

With the recovery struggling to grain traction, and a turn in the business cycle at some point, returns are likely to be lower going forward.

Don’t despair, you can still find your fortune on the FTSE 100. Dividend-paying stocks generate roughly 40% of your returns over the longer-term, assuming you reinvest them for growth.

And there are some amazing dividends out there, from big, established names. Royal Dutch Shell yields more than 6%, while mining giant BHP Billiton, oil major BP and pharmaceutical firm GlaxoSmithKline yield only slightly less.

Global banks HSBC Holdings and Standard Chartered, and utility firm SSE, all yield comfortably above 5%.

With prices rising at just 0.1% a year, you are getting income worth up to 60 times inflation.

Dividend stocks are the FTSE 100’s crowning glory right now

And there are plenty more juicy yield on the FTSE 100. 

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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has recommended shares in HSBC and GlaxoSmithKline. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.