Thursday, January 14, 2010

Highest Yielding Stocks In The S&P 500 Index Best In The Long Run

A recent article in Kiplinger magazine by Jeremy Siegel, Scoop Up Dividends, notes the highest yielding dividend payers in the S&P 500 Index have outperformed the lowest yielding dividend payers going back to 1957. In Siegel's research he points to the fact:
"If an investor had put $1,000 in a portfolio of the 100 highest-yielding stocks on January 1, 1957, by December 1, 2009, he would have accumulated more than $450,000 (assuming all dividends were reinvested). That’s a hefty annualized return of 12.5%, an average of almost 2.5 percentage points per year greater than the return on the S&P index. That same $1,000 invested in the 100 lowest-yielding stocks returned only 8.8% per year."
As I have noted in past posts, the absolute dollar amount of dividends in 2009 has declined significantly. Most of the decline has occurred in the financial sector. The article notes,
  • for 2007, at the height of the bull market, the dividend stream -- total dividends paid on all U.S. stocks -- was $288 billion.
  • for 2009 through November, the dividend stream had dropped to $216 billion -- the greatest decline in that measure since the end of World War II
  • the entire decline in dividends can be attributed to the financial sector, which cut its total payouts by $79 billion over the past two years. (Siegel includes General Electric because GE’s dividend reduction was caused solely by the losses at GE Capital.)
  • in other sectors of the economy -- energy, health care, technology, consumer discretionary, consumer staples, telecom -- dividends have actually risen over the past two years, even with the recession.
Although Jeremy Siegel cites the higher return of the highest yielders, investors should perform their own due diligence and not chase yield blindly. The dividend paying stocks in the S&P 500 Index can be found at indexArb's website.

Scoop Up Dividends
Kiplinger Magazine
By: Jeremy Siegel
February, 2010

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