Dividend Stocks Outperform

In his book Active Value Investing, Vitaliy Katsenelson illustrates that between 1900 and 2000 the average annual return from the S&P 500 was 10.4%, out of which 5.5% could be explained by dividends. But these returns were extremely lumpy depending on whether the prevailing environment was a secular bear or a secular bull. He discovered that while in secular bull markets dividends accounted for only 19% of annual average stock market returns (the rest coming from capital growth), whereas in sideways markets they accounted for 90% of the returns.

Given that Katsenelson predicts that the current secular bear market will continue on until 2020 this finding alone ought to raise the odd dividend skeptic’s curiosity. The net result is that if you want to make a return from equities in sideways markets, you are going to find it very tough without investing in quality dividend paying stocks. James Bianco of Bianco Research recently stated that “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 under perform during bull markets.”

Source: Stockopedia

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