The Case for Dividend Stocks

Dividends are an increasingly better bet for stock investors lately. Payouts are expanding and, if the market slides, dividend-paying stocks hold up better than others. Stock returns come from two sources: capital gains and dividends. A capital gain occurs when a stock you purchase appreciates in price. Dividends are payments made directly to shareholders and day-to-day changes of a stock's price do not affect them.

The S&P 500 averaged a total return of 9.7% annually over the past 40 years. With dividends, removed the return falls to 6.4% per year. So over the past 40 years, dividends made up around one-third of the total return of large U.S. stocks. Even more impressively, since 1926, 45% of the S&P’s total return came from dividends.

Source: Morningstar

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