Does High Dividend Investing Hold Up Over Time

Insider Monkey published an article last week showing how dividend yielding stocks beat the stock market by 5.4% when 10-year interest rates are below 2.5%. Investing in dividend stocks seems like a great idea if interest rates stay below 2.5% for a long time. Unfortunately, we can’t tell the future. Who knows where interest rates will be next month, next year, or the next decade? Let’s take a look at the long-term behavior of this investment strategy.

At the end of every year we picked the 20 highest dividend yielding stocks among the largest 500 stocks (between 1927 and 1950 we limited the universe to the largest 200 stocks, and between 1951 and 1965 the universe was the largest 300 stocks) and kept these stocks in our portfolio for exactly one year. Between 1927 and 2009, high dividend yielding stocks returned an average of 13.04% per year. The value-weighted market return was 11.68% during the same time period. The dividend stocks beat the overall market by an average of 1.36% per year. This is not negligible. The compounded return for dividend strategy is 3960 vs. 1990 for the broader market.

Source: Business Insider

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