I received the following email from AAII soliciting subscriptions for their AAII Dividend Investing Newsletter. The focus is very similar to our Monthly Dividend Project and the writing superb, the logic excellent, as is the myth busting. This should give you excellent insight into what I am attempting with this new project.
So, let’s take a few minutes to dispel those myths and talk about how you can profit from the almost perfect investment — Dividend-Paying Stocks.
Myth #1: Dividend stocks are for widows and orphans who want safety and are willing to sacrifice overall return to get it.
The following chart should change the way you think about investing in dividend-paying stocks forever…
As the chart above shows, when you take dividends out of the performance equation, historical return for stocks falls from 10.1% annually to only 5.8%. As you can see, dividends are responsible for more than 40% of the market’s annualized long-term total return. Incredible!
That means that if you aren’t investing in dividend-paying stocks, you are leaving money — and lots of it — on the table.
Myth #2: Dividend-paying stocks are the slow, boring way to invest.
There was a time when being a “dividend investor” was practically synonymous with being a shareholder in public utilities — companies like Ma Bell and Standard Oil. But not anymore.
Stocks like Intel, Microsoft, Texas Instruments, Target, Mattel, even Nike all pay dividends. Even tech superstar Apple has hopped on the dividend bandwagon, paying more than $10 billion in its first year alone! These are NOT your father’s dividend stocks!
Our portfolio certainly contains some companies you are likely to know, but also many that fly under Wall Street’s radar and are overlooked by investors.
But there is one thing our portfolio does NOT contain.
Myth #3: The bigger the yield the better.
One thing we NEVER do is look for stocks with just the highest yield. In fact, an unusually high yield can actually be an important red flag because it can often signal a troubled company, undue risk, and the possibility of a fall in share price.
Rather than chasing yield, we tirelessly screen over 2,500 dividend-paying companies using a comprehensive system that quickly weeds out risky stocks and identifies the select dividend stocks worthy of your investment.
Myth #4: Paying dividends stymies a company’s future growth.
Here’s a simple fact that most investors don’t know: Over the past four decades, stocks with rising dividends outperformed every other type of stock.
This 44-year study from Ned Davis Research and Oppenheimer Funds tells a clear story:
As you can see, stocks with rising dividends greatly outpaced the stocks that cut their dividends or simply did not offer a dividend in the first place.
Let’s look at what that means in real numbers…
$100,000 invested 44 years ago in stocks with no dividends would be worth $9,157,000 today.
$100,000 invested in stocks with fixed dividends would be worth $15,256,000. Not too shabby.
BUT that same $100,000 invested in Rising Dividend Stocks would be worth an amazing $21,950,000! Note, investing in Rising Dividend Stocks over fixed dividend stocks would have boosted your profits by an average of 43% each and every year of the 44-year study.
Are you really willing to leave an extra $6.7 MILLION or more on the table?
An Almost Perfect Investment
Once you get past the myths, it’s easy to see that dividend investing is an almost perfect strategy can give you superior total return, a steady income stream for life and protection in market downturns.
For income investors, dividend-paying stocks are favored because they can provide the stability, safety and income you want. But unlike the fixed interest payments of bonds, dividend-paying stocks can also give you growth from both a RISING DIVIDEND YIELD and from a RISING STOCK PRICE.
PLUS, dividend investing helps to minimize your risk, providing a cash cushion during volatile markets. Stock prices may rise and fall, but dividends can reward you year after year after year.
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