Dividend Stocks Outperform During the Rally

Prior to the 2008 financial crisis, investors typically flocked to stocks with high dividends as safety plays when the overall market was in correction mode. However, since so many financial stocks had nice yields, dividend stock indices and ETFs actually underperformed the S&P 500 throughout the last bear market. The ability for companies to actually pay their dividends eventually came into question, and that added even more fear to owning high yield stocks.

Below we highlight the performance of the Dow Jones Dividend Select index versus the S&P 500 during the bear market that ran from 10/9/07 to 3/9/08. As shown, the dividend index was down 60.3% versus the S&P 500's decline of 56.7%. Since the March 9th bottom, however, dividend indices have outperformed. As shown in the bottom chart, the same dividend index is up 51.16% while the S&P 500 is up 45.18%.

click to enlarge

Comments

[Joe Siegel:]

Unfortunately, remember that the higher the stock price the lower the dividend assuming a constant payout rate. If the Dow goes over 10K look for dividend stocks to be less sought after and growth stocks to resume their popularity. Not too many companies out there have the cash flow to increase their dividends at this point.

bugsy

Aug 07 07:17 PM