To Dividend or Not to Dividend

To dividend or not to dividend, that is the question? In 2011, most of what we have been saying about dividend stocks for the last 15 years came into full view for everyone to see. In a weak stock market, the cash payments distributed by dividend-paying companies were more highly valued than betting on the come with the non-dividend payers. During most of the year, the dividend yields of many stocks were higher than the yield on a 10-year U.S.Treasury bond. This fact alone lifted many consumer staple, energy, health-care, and utility stocks. Taken as a group, dividend-paying stocks significantly outperformed non-dividend paying stocks.

In 2011, dividend-paying companies, particularly those that have a history of consistently raising dividends, gradually were seen to be bond substitutes. This is due to the compounding effect of rising dividends. A company with a 3% dividend yield today will be yielding 6% in ten years if its dividend grows at a 7% annual rate. A company yielding 2% today with its dividend growing 12% per year will yield near 7% in 10 years. During the year, dividend paying stocks became the equity asset of choice.

Source: Rising Dividend Investing

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