Wharton professor Jeremy Siegel came up with the term "corporate El Dorado" while studying the common characteristics of the greatest stocks in S&P 500 history. He found that 97% of the total after-inflation accumulation from stocks came from reinvesting dividends. Dividend-paying stocks act, in Siegel's words, as "bear-market protectors" and "return accelerators." When dividends get reinvested, they purchase more and more shares at lower prices during a bear market. These extra shares act as a bear-market protector. Then, when share prices reverse, the extra shares act as a return accelerator and rocket total returns higher.

If you need more proof, consider that the 20 best-performing survivor stocks in Siegel's study from the original S&P 500 in 1957 are all dividend payers -- names such as Altria, Abbott Labs, Bristol-Myers Squibb, and Tootsie Roll Industries, as well as Coca-Cola. Altria, as Philip Morris, was the top performer in Siegel's 1957-2003 study period, with an incredible annualized return of 19.75%. That was enough to turn an original $1,000 investment into $4.6 million!

Source: Motley Fool

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