Dividend Paying Stocks

With dividend payments at an all-time high and much of the Treasury yield curve effectively at zero, dividend-paying stocks have been in vogue as of late. Many investors are willing to reach out a bit further on the risk curve to capture this extra yield. Rather than viewing dividend stocks as a way to capture extra yield, in the past we have stressed that dividend stocks should simply be viewed as a slightly less risky form of stock investing. As such, we should expect dividend- paying stocks to outperform during bear markets and underperform during bull markets.

During the bear market from October 11, 2007 to March 6, 2009, dividend-paying stocks outperformed the S&P 500 Equal Weight Index by 11.6%. On an annualized basis, dividend stocks returned -35.74% versus -46.10% for the S&P Equal Weight Index. During the bull market from March 6, 2009 to May 2, 2011, dividend-paying stocks underperformed the S&P 500 Equal Weight Index by 42.4%. On an annualized basis, dividend stocks returned 44.38% versus 56.64% for the S&P Equal Weight Index.

Source: Ritholtz.com

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