Is Income Investing Superior To Growth Investing?

Dividend investing is a strategy that focuses on generating gains from dividend income, rather than capital growth. Historically, dividend payouts were a primary motivation for investors (Wharton School of Business professor Jeremy Siegel has pointed out that over 90% of the gain of the Dow since 1900 has been from reinvested dividends), but this mode of investing largely fell out of favour during the 1982-1999 bull market, as company valuations rose dramatically for such a sustained period.

Contrary to conventional wisdom, a Standard & Poor's study has shown that dividend-paying stocks actually do better in the long run in terms of total returns (price appreciation plus dividend income) - payers outdistanced nonpayers by 1.9 percentage points annually from 1980 through 2003. A study by David Dreman - in collaboration with Vladimira Ilieva of the Institute of Psychology & Markets – has also looked at a broader universe of equities, the 1,500 of the largest companies trading in U.S. markets. From 1970 through 2003, the top fifth of the payers had an annual 14.5% total return vs. 8.8% for the lowest yielding group.

Source: Stockopedia

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