Why Invest In Dividend Stocks? A Review Of Recent Research

Oct. 06, 2012 2:43 AM ETCOP, HAS, INTC, LMT, TEVA, TGT131 Comments
Jeff Paul profile picture
Jeff Paul

Over the last two years, I have come to embrace dividend growth investing [DGI], based on academic research showing superior returns from a DGI strategy and my own experiences with my model and personal portfolios. It has been a while since I searched for new research on DGI, so I went to Google and was surprised with what I found - several reports on the benefits of dividend stocks and DGI, supported by research and authored by asset management firms. I wasn't sure whether to congratulate them on finally "seeing the light" or to be worried that even asset management firms were now joining the DGI crowd. Of course, this doesn't change the concepts of asset allocation for them; it just influences the equity component.

Anyway, there was a lot of really good information and supporting data, which I will attempt to highlight and summarize in two articles. I strongly recommend downloading the reports from the provided links and reading through them, as I can't cover everything nor give the level of detail that is in the reports. This article focuses on the historical data and trends that support investing in dividend growth stocks, based on reports from BlackRock, Columbia Management, and Eagle Asset Management.

Benefits of Dividends

Let's start with what most investors in this forum already know. Dividend stocks are typically more mature, stable businesses that can afford to share profits with shareholders. Dividends serve as an important component of total return, accounting for approximately 40% of U.S. stock market returns since 1930. Sustainable and growing dividends help to hedge the income stream against inflation, to provide growing income to investors without the need to sell shares, and to signal strength to investors. These firms generally exhibit lower stock price volatility, while delivering attractive and even superior returns. Now let's get into more detail on a few of these benefits.

This article was written by

Jeff Paul profile picture
Jeff Paul has been investing since his teen years, though his professional career has primarily been in software engineering, education, and healthcare. His math classes participated in online stock market challenges, providing an opportunity to share his enthusiasm for investing with his students and the chance for them to learn the fundamentals and try to identify the next big stock (they found Google). Jeff completed an MBA at Portland State University with a focus on finance. He served as a Senior Investment Analyst and Portfolio Manager at a wealth management firm, where he developed and managed a Dividend Growth portfolio that outperformed the S&P 500 over a 5-yr period. Jeff currently works in data analytics at a large healthcare system.

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