Dividend Stocks Aren't Fail-Safe

Posted by D4L | Thursday, May 03, 2012 | | 0 comments »

Dividend investing has many sterling qualities but protection against downturns is not one of them. With few exceptions, dividend stocks fall just as hard as other stocks when the market crashes. Yet despite that failing, you should still own dividend stocks. Let me explain why, with the help of Dartmouth professor Kenneth French.

The highest yielding stocks didn't produce the best returns. It was the second highest yielding group that fared best, with average annual returns of 11.8 per cent. What’s behind this quirk? Extremely high yields are usually a sign of distress rather than strength. Should a company run into trouble, its share price often tumbles, pushing its yield into the stratosphere – until management cuts the dividend to save money.

Source: The Globe and Mail

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