Safety in Dividends?

Yesterday we discussed how dividend paying stocks have underperformed the overall market over the last year.  While high yielding stocks are generally thought of as providing a cushion of safety during times of market declines, other trends over the last year suggest this to be anything but the case. 

Of the 101 stocks in the Dow Jones Select Dividend Index, only 14 stocks (14%) are up over the last year compared to 35.2% of the stocks in the S&P 500. 

Meanwhile, even though the Nasdaq 100 has the fewest dividend payers and is thought of by most as being the most risky, over the last year, 44% of the stocks in the index are up.

Comments

[User 1082:]

FVD has out performed the S&P 500 for the last three years.

First Tr:VL Div Index FVD Price: $15.35 -0.07 -0.47% Vol: 9,008 3:57 PM ET 6/3/2008
The Fund seeks total return through a combination of current income and capital appreciation, by investing primarily in common stocks that pay dividends and have the potential for growth.
Style Market Cap Classification Asset Class Inception Date Primary Exchange
Core Multi-Cap Equity 08/19/2003 AMEX
Performance
FVD SP500
1 Day 2.35 -1.05
1 Week 2.93 0.74
4 Weeks -4.10 -1.39
13 Weeks -1.36 4.50
1 Year 0.57 -8.51
3 Years 26.49 19.87


1 day | 1 wk | 4 wks | 13 wks | 1 yr | 3 yr

Investment Information
Market Cap 154,034,936
Net Assets $155,000,000
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Avg Daily Vol 15,300
Dividend Rate % 2.71
Latest Dividend $0.10 - 03/24/2008

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Administrator FIRST TRUST ADVISORS LP
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Beta .79
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Company Name % of Total
Portfolio Dollar Value
(in thousands)
Wyeth 0.59% $914.50
Public Storage 0.59% $914.50
Enbridge Inc 0.58% $899.00
TransCanada Corp 0.58% $899.00
Clorox Co 0.58% $899.00
ConocoPhillips 0.58% $899.00
Telefonica SA Depository Receipts 0.58% $899.00
Unilever PLC Depository Receipts 0.58% $899.00
Vulcan Materials Co 0.58% $899.00
Illinois Tool Works Inc 0.58% $899.00
Total: 5.82% $9,021.00


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Sector Allocation
Sector % of Total
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UTILITIES 20.49%
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INDUSTRIALS 11.68%
HEALTH CARE 5.06%
Consumer Services 4.38%
OIL & GAS 3.99%
BASIC MATERIALS 3.91%
TELECOMMUNICATIONS 2.27%
TECHNOLOGY 1.67%

2008 Jun 03 06:04 PM

[cocomurph:]

1.Did you include the dividend's contribution to total return when figuring out whether a stock was "up" or not for the year?

2.Could be a spurious correlation, in that dividend paying stocks are dominated by a currently out of favor sector-financials.

2008 Jun 04 10:14 AM

[jackooo:]

If a stock does not pay a decent dividend, I don't buy it. If I had learned this 50 yrs. ago I would be much richer.
Why buy a stock with no dividend and just have to pray with no backup?

2008 Jun 04 11:44 AM

[adan:]

very interesting, thank you

would be fun to know too, percentage of dividend paying stocks that've reduced or eliminated their dividends vs kept the same or raised

thanks again

2008 Jun 04 01:01 PM

[hrant:]

your analysis is misleading . except for very rare cases like Apple Inc ,I only buy dividend paying stocks and it has served me very well over decades of investing

2008 Jun 04 02:49 PM

[Dividend Gr...:]

This is a great article from a contrarian perspective. I would love the dividend companies to fall even further down ( 20% would be great). Why? Because with dividend companies, even when there's a disconnect between fundamentals and market price, you can get a good stock at a bargain price that will keep throwing dividend payments in your way, no matter if the market goes up 10% this year or falls by 5%.
In other words if a stock is showing good eps growth, good dps growth, and has a not too high DPR and P/E ratios, I would buy it. What if the price fell by 20%? I would keep it as long as the dividend payment is sustainable and growing.

2008 Jun 05 08:49 AM