Why You Should Own Dividend Stocks

Dividend stocks are making a comeback. Because companies that pay and grow their dividends tend to be more well-heeled value stocks – as opposed to growth stocks – the group tends to be more defensive than the general market. Dividend stocks may lag in a stronger market, but are more likely to outperform in a down market. While the Standard & Poor's 500 index is off more than 2.8 percent so far this year, the S&P High Yield Dividend Aristocrats index and the Dow Jones U.S. Select Dividend index are both up roughly 3 percent. The broader WisdomTree Dividend index is down just 0.04 percent.

From 1972 through 2014, dividend-paying stocks in the S&P 500 provided an average annual total return of 9.3 percent, compared with non-dividend paying stocks that generated 2.6 percent returns, according to Ned Davis Research. Companies that grew their dividends performed even better. "They generate better returns with less volatility," says David Bahnsen, chief investment officer of the Bahnsen Group, part of Chicago-based private wealth management company HighTower Advisors. Dividend aristocrats are strong companies. With the markets struggling this year amid economic growth concerns, dividend stocks could outperform the market as investors look for the safety of big dividend-paying companies.

Source: U.S. News and World Report

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