💸 Dividends Pay When Stocks Don’t
Today is Dividend Day.
In this series, I will teach you 5 things about dividend investing in less than 5 minutes.
1️⃣ Dividends Pay When Stocks Don’t
If you think price gains are the whole story in investing, think again.
For decades, dividends have done a lot of the heavy lifting.
Look at the 1940s, or the 70’s... the majority of your total return came from dividends.
Even in boom times like the 1980s and 1990s, dividends still made up a big chunk of the gains.
And what about the 2000s?
Dividends were the only thing keeping your portfolio above water.
They were your lifeboat in a lost decade.
And guess what?
They’ll be your lifeboat in the next one, too.
2️⃣ Dividends Add Stability
The image shows the S&P 500’s changes in dividend growth VS changes in price.
The takeaway? Dividends are way less volatile.
Price changes are a rollercoaster.
Dividend growth is a stroll in the park.
Which one do you want to trust your retirement to?
The fewer wild swings you endure, the fewer dumb mistakes you’ll make.
And in investing, that's half the battle.
3️⃣ An Investing Quote
Markets crash. Prices burn.
Dividends? They pay you to survive.
Howard Silverblatt explains why:
“Dividend stocks have several advantages, since 1926 dividends have accounted for about 42 per cent of investor returns, while being less volatile than the market. To some extent the dividend acts like an anchor, slowing the stock down. The beauty of dividends is that you get paid, whether or not the market is up.”
- Howard Silverblatt, Senior Index Analyst with Standard &Poor’s
4️⃣ Dividends - Higher Returns, Lower Volatility
Anchor Capital wrote an article during the COVID crash showing the historical outperformance and stability of dividend stocks.
It was written during another time of market uncertainty and the lessons in it are relevant today.
- Avoid chasing high dividends alone: High dividend yields can be unsustainable if not supported by earnings growth, and focusing too much on yield can lead to missed growth opportunities.
- Look for sustainable dividend payers: Companies that can afford to pay and grow dividends in line with earnings tend to perform better long-term.
- Prioritize responsible financial decisions: Dividend payments often encourage companies to make more disciplined financial choices, leading to better long-term performance.
- Think long-term: Dividend income strategies with a focus on sustainable growth tend to outperform benchmarks over time.
Click the image to read the article.
5️⃣ Example of a Dividend Stock
Lockheed Martin is a company with a stable future, and a 22 year history of dividend increases. Let’s take a look at it.
They specialize in aerospace, defense, and security technologies, providing everything from fighter jets to missile systems to satellite services.
- Profit Margin: 7.7%
- Forward PE: 16.9x
- Dividend Yield: 2.8%
- Payout Ratio: 55.5%
I charted this one a bit different to compare the stability of dividend payments against the volatility of share prices.
Notice the steadily rising Dividend Per Share line and compare it to the jagged price line.
That’s it for today!
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Used sources
- Interactive Brokers: Portfolio data and executing all transactions
- Finchat: Financial data