Why Own Dividend-Paying Stocks?

Dividend-Producing Stocks Offer the Potential for Growth and Increasing Income

The income produced by dividend-paying stocks has been a valuable component of equity investing for more than a century. Many of these stocks have paid a regular dividend for decades, contributing strongly to overall market returns. Proctor & Gamble, for example, has never missed a quarterly dividend payment since 1890, with 55 straight years of increases.1 

As you can see from the pie chart below, dividends make up nearly 50% of the stock market's total returns since 1926. The ability of companies to pay consistent dividends also tends to be a reflection of strong cash flows and balance sheets, and may be a good indicator of long-term growth potential.

Dividends Have Contributed Nearly Half of Long-Term Equity Returns

Dividend-Paying Stocks vs Non-payersThe number of companies announcing dividend increases has grown steadily since 2009. As the economy appears to be slowly recovering, company balance sheets have improved allowing them to reward investors with higher dividends. During 2011, companies paid out an additional $50 billion in dividend payments, representing an 16% increase over 2010.2

This renewed focus on dividends comes at a time when many fixed-income investments are paying historically low yields. The yield on the 10-year Treasury dipped to 1.9% in December 2011, dropping below the 2.1% yield of the S&P 500 for just the second time since 1958.3

With interest rates likely to rise eventually, dividend-paying stocks offer a degree of market participation not available with most fixed-income investments. Plus, dividend growth rates have historically outpaced inflation over time.

The combination of current income and capital appreciation make dividend-paying stocks a unique and attractive investment in a well-diversified portfolio. For more information on incorporating the power of dividends in your portfolio, visit the AIG Focused Dividend Strategy Fund.

 

1 Source: 2011 P&G Annual Report

2Source Standard & Poor’s Dividend Record, December 31, 2011
3Source: Bloomberg Business News, August 11, 2011, Standard & Poor's, U.S. Treasury

 

Asset allocation does not guarantee a profit nor does it protect against loss.