Tickers in this Article: VLY, NOK, BCE, FE, MO, SCCO, RGC
It's no wonder that investors are so hungry for dividend stocks. Not only do dividend-paying stocks provide income, but they also consistently outperform their counterparts, especially during periods of market pullbacks. When it comes to investing, it just doesn't get much better than that. Here we examine the long-term performance of dividend-paying stocks compared to those that do not offer the income benefit. The results are rather intriguing. (For background reading, see The Power Of Dividend Growth.)

TUTORIAL: Stock Basics



Dividend Stocks in Market Downturns

In the 14-year time frame beginning March 1997, the S&P Global 1200 Index produced a total return of 100%. However, the S&P Global Dividend Opportunities Index produced a nearly 300% wealth gain during the same interval. Likewise, investors whose portfolios mimicked the broad S&P 500 would have seen their portfolios increase by a whopping 150% over the last 15 years. On the other hand, those who invested in the S&P 500 Dividend Aristocrats Index would have realized a gain of approximately 290%. This discrepancy in returns becomes magnified when assessing the returns between March 2000 and 2010.While the broad S&P was practically flat, the High-Yield Dividend Aristocrats Index gained around 150%. Clearly, dividend-paying stocks tend to significantly outperform their counterparts during market downturns.



There are a number of clear reasons why income stocks tend to produce such strong long-term returns. Companies will only issue or raise their dividends when management is certain of the business model and future growth prospects. If uncertainty exists regarding a firm's ongoing operations, a company will typically avoid implementing a dividend policy. Furthermore, while basic stocks only offer price returns to investors, dividend payers offer a total return, which also includes the added benefit of a steady income stream. (To learn more, see Why Dividends Matter.)



7 High-Dividend Stocks

The list below presents seven stable stocks in diverse industries that are offering significant dividend yields.



Company
Yield
Valley National Bancorp (NYSE:VLY)
5%
Nokia (NYSE:NOK)
5.9%
BCE Inc (NYSE:BCE)
5.42%
First Energy (NYSE:FE)
5.51%
Altria Group (NYSE:MO)
5.70%
Southern Copper (NYSE:SCCO)
6%
Regal Entertainment (NYSE:RGC)
6.1%


Risk-Adjusted Performance

In addition to offering higher returns, dividend-paying stocks tend to be of lower risk as well. Compared to the one-, three-, five- and seven-year returns of the S&P 500, the Dividend Aristocrats Index easily outperformed the market over every time frame. In addition, based on data provided by Standard & Poor's, the short-term and long-term risk, as measured by the standard deviation, is less for the Aristocrats index. Therefore, while the average S&P 500 Sharpe ratio is -0.0135 and 0.0267 based on a respective three- and five-year time frame, the corresponding metrics for the S&P 500 Dividend Aristocrats Index stand at 0.0974 and 0.0905.

The Bottom Line
Dividends help investors achieve long-term growth and make a great addition to any portfolio. Plus, you can't beat their performance during market downturns. (These five qualitative measures allow investors to draw conclusions about a corporation that are not apparent on the balance sheet. Check out Using Porter's 5 Forces To Analyze Stocks.)

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