Cash-rich laggards start setting the pace

With the return of eurozone stresses, companies with what it takes to make payouts to investors and snap up rivals cheaply are back in favour

By Tom Lydon: Dividend exchange traded funds are set to profit from higher payouts from corporate America, but income-starved investors should keep in mind that stocks are more volatile than bonds. If the economy worsens, investors in equity-linked ETFs may suffer capital losses that could swamp the dividend yield. That said, higher dividend payouts are on the way for this year and into 2012, as companies are reporting record profits and are secure with cash, according to a recent report.

Large-capitalization technology stocks that returned nothing or lost money for shareholders will continue to do the same in the future. Why? These companies are very rich with cash, are growing at steady rates, but the market believes they lack any hope for growth. The ability for these companies to grow are held back by a number of important reasons: Heavy management, company size, or by the inability to compete with more nimble rivals.

By Arie Goren:The payout ratio is the percentage of a company's earnings paid out to investors as cash dividends. The lower is the payout ratio, the more secure is the dividend because smaller dividends are easier to pay out than larger dividends.I have searched for very profitable companies that pay rich dividends with a low payout ratio, and that have raised their payouts significantly each year. Those stocks would have to show stable financial conditions and a low P/E.

By Arie Goren:Investing in companies that regularly raise dividends provides security in an uncertain market and means higher returns ahead. I have searched for very profitable companies that pay rich dividends and that raise their payouts significantly each year. I also looked for companies that have a very low price to free cash flow (many investors prefer using free cash flow instead of net income to measure a company's financial performance, because free cash flow is more difficult to manipulate.

At long last the ISDA has agreed that Greece in in default, and that default constitutes a "credit event". Bloomberg reports Greece Deal Triggers $3B in Default Swaps. Greece’s use of collective action clauses forcing investors to take losses under the nation’s debt restructuring will trigger payouts on $3 billion of default insurance, the International Swaps & Derivatives Association said.

Wealthy households would face new taxes on property and other assets under German plans to prop up the struggling eurozone. Senior advisers to Chancellor Angela Merkel are pushing for better-off households to pay towards the cost of any future bailouts for the weaker members of the single currency. The proposals, from members of Germany’s council of economic experts, raise the prospect of taxes being imposed on property in a country like Spain if its government was forced to seek a bail-out.