Investing in Dividends

THREE STUDIES THAT PROVE INVESTING IN DIVIDENDS WORKS

1. A Robert Shiller study showed US dividends have grown at a compound annual rate of 4.4% since 1926. The base dividend yield over this period has averaged 4.2%. Therefore, of the US market's annual total return of 9.7% since 1926, 8.6% of it (or 89%) came from dividends. (Robert Shiller database, Yale University, http://www.econ.yale.edu/~shiller/data.htm. Cowles Commission data from 1871 to 1926; S&P precursor data, sometimes referred to as the Ibbotson data series from 1926 to 1957; S&P 500 Index data from 1957).

2. A Societe Generale study examined rolling 10-year returns from 1970 to present and found that 82.5% of the US market returns was attributed to dividend yield and dividend growth. (Andrew Lapthorne, Societe Generale, Cross Asset Research, Global Income Investor Report, 2010).

3. A RBC study looked at dividend-growing stocks versus non-dividend-paying stocks and found that from 1986 to 2012, dividend-growing stocks averaged an annual total return of 11.9% while non-dividend-paying stocks averaged 1.0% annually. Furthermore, the volatility of the dividend-growing stocks, as measured by their standard deviation, was 13% versus the non-dividend-paying stocks was 23%. (RBC Capital Markets Quanitative Research, Dec 1986 to April 2012, Equal Weighted, %).

Conclusion:

Investors can achieve superior returns and experience less volatility by focusing their investment strategy around dividend-growing stocks. In doing so investors will own higher quality investments, take less risk, and experience far better results over the long term.