Wednesday, July 17, 2013

Dividend Payers Underperforming Non-Payers For First Six Months Of The Year

It seems much of the focus around the stock market this year has centered around investors chasing the dividend paying stocks. The theme of the discussion has been bond investors have been buying "bond like" stocks in an attempt to enhance the yield on their investments. The thinking has been bond yields are so low, one can buy dividend paying stocks with higher yields than a bond of the same company.

The downside to this investment approach is equities are more volatile than bonds. The other downside is dividend paying stocks have underperformed the non payers for the first six months of the year through June 30th. Some of the higher yielding stocks in the S&P 500 Index fall into the materials (metals and coal), utility and telecumminucations sectors of the market and these stocks have been weak performers year to date. As the below chart from S&P Dow Jones Indices shows, the average return of the non payers has exceeded the payers for the time periods listed below during the past twelve months.

From The Blog of HORAN Capital Advisors

A list of the company yields and returns can be found at this link: Return and Yield File.

In spite of the payers underperformance, investors in dividend paying stocks have enjoyed nice growth in the income generated through the growth in a company's dividend. Howard Silverblatt, Senior Index Analyst at S&P Dow Jones Indices, noted recently of the approximately 10,000 U.S. traded issues,
“Dividends continued to increase in the second quarter with actual cash payments increasing 15.5% and the forward indicated dividend setting another all-time high. Payout rates, which historically average 52%, continue to remain near their lows at 36%. At this point, year-to-date dividend payments are up 13.9%, with 2013 easily expected to surpass the 2012 record dividend payment.”

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