Myths About Dividend-Paying Stocks

The most common misconception among investors may be the value of investing in dividend-paying stocks. Almost every week, someone contacts me to extol the virtues of investing in what they call “high quality, dividend-yielding securities.” Often, their interest is spurred by the recent high performance of these stocks. According to one paper by Gregg S. Fisher, published in the Journal of Financial Planning, the FTSE High Dividend Yield index of U.S. stocks returned a whopping 26 percent between the period of Jan. 1, 2011 and Sept. 30, 2012. During the same period, the Standard & Poor's 500 index fell short, returning 19 percent.

There are many myths on the benefits of investing in these stocks. Here are some of the most common ones:
Myth No. 1: Dividends hold up in bad markets.
Myth No. 2: Dividend-paying stocks outperform the market.
Myth No. 3: Dividend-paying stocks provide adequate diversification.
Myth No. 4: Dividends are a reliable source of future income.
Myth No. 5: Dividends are tax efficient.
Myth No. 6: Buying dividend stocks is a prudent way to obtain exposure to value stocks.
Myth No. 7: Dividend-paying stocks are a substitute for bonds.

Source: US News & World Report

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