Thursday, May 19, 2016

Why Starting Young with Long Term Strategy Pays Off

Stocks That Raise Their Dividends Greatly Outperform

Academic and industry studies confirm that quality dividend payouts lead to strong future returns. That’s a mouthful to be sure, but what it distills down to is that as an investor, dividends allow you to have your cake and eat it too! Dividends provide you with a valuable income stream, plus they can play an important role in helping you focus in on stocks that have the ability to produce staggering share price growth.

In order to appreciate the predictive power of dividends, consider a recent study conducted by Ned Davis Research and Oppenheimer Funds (see Figure 1 below).

The study looked at the average annualized returns for S&P 500 stocks from 1972 to 2014. As you can see, during this impressive 42-year study, stocks with Rising Dividends greatly outpaced the stocks that cut their dividends or simply did not offer a dividend in the first place. Further, if you focused on investing in Rising Dividend Stocks over fixed dividend stocks, you would have received 32% more return each and every year of the 42-year study.

(above is from AAII)

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