“It’s important to remember that stock returns are driven by two key components: dividends and capital appreciation,” says Jason Crowley, financial adviser at Buckhead Investment Partners in Atlanta. “Since 1926, the S&P 500 has returned approximately 7% annualized when adjusted for inflation. Reinvested dividends account for roughly two-thirds of that return with the remaining one-third attributable to capital appreciation.”
Owning dividend stocks is a great idea if there is a chance of a market correction, since the dividend returns can offset losses due to a decline in share price. But dividend stocks are sound investments in any market. Over longer periods, dividend stocks tend to be among the highest performers in a diversified portfolio.
Source: Mint.com
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