As the below table shows, the dividend payers in the S&P 500 Index did not hold up so well during January's market correction. The January average return of the payers equaled a negative 3.54%. The non-payers generated a positive return of .40%. Historically, dividend paying stocks generally hold up better during market corrections. This has not been the case over the course of the last year and a half though. We have touched on this topic in a few earlier posts, focusing on the fact traditional bond investors may be purchasing dividend paying stocks due to low bond interest rates. It may be the case that traditional bond investors, purchasing "bond-like" stocks, have less of a tolerance for declining equity prices. A result is they may be quick to sell these dividend payers at the first sign of equity market weakness; hence, the weakness exhibit by dividend paying stocks in recent market pullbacks.
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| From The Blog of HORAN Capital Advisors |
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