Saturday, August 25, 2007

Dividends Do Matter

With the increase in market volatility over the last month, and mostly on the downside, dividend payers, on average, lost half as much as the non payers according to Standard and Poor's. S&P notes:

The dividend, to some extent, acts like an anchor, slowing the stock movement down since there is an actual cash payment. That means swings in these stocks prices, during both good times and bad, aren’t as dramatic as their non-dividend paying peers.
Standard & Poor's analysis looked at the payers versus the non payers going back to 1979 and they found:
  • Payers did 2.24% better per year compounded than the non-payers.
  • Translated from an initial investment of $10,000, non-payers would now be worth $262,237 vs. a worth of $451,458 for the payers, a difference of 72%.
  • The difference between the payers and non payers is 2.24%, which is the dividend yield.
Payers Pay ($)
Standard & Poor's The Outlook
By: Howard Silverblatt and Beth Piskora
August 29, 2007

1 comment :

Anonymous said...

Excellent post which I totaly agree with. I run a dividend based portfolio and occasionally blog about the importance of dividends .

I recommend checking out the HYP board on the UK Fool site which has been running a range of high yield portfolios for some years. Its interesting as one was started at the market peak and another at the bottom so you can get an idea of performance in difference market conditions.