Dividendpaying stocks have historically outperformed non-dividend-paying stocks from "summary" of The Little Book of Big Dividends by Charles B. Carlson
One key principle to keep in mind when it comes to investing in stocks is that companies that pay dividends have a history of providing better returns compared to those that do not. This historical trend is significant because it highlights the potential benefits of including dividend-paying stocks in your investment portfolio. When a company pays dividends, it is a sign of financial strength and stability. It indicates that the company generates enough profits to distribute a portion of those earnings to shareholders. This consistent payment of dividends over time is a reflection of the company's ability to generate and sustain its profits, which can be reassuring to investors. Furthermore, dividend-paying stocks have historically shown greater resilience during market downturns compared to non-dividend-paying stocks. The reliable stream of income from dividends can provide a cushion during periods of market volatility, helping to offset potential losses in stock prices. This characteristic of dividend-paying stocks can contribute to a more stable and less volatile overall investment portfolio. In addition, the power of compounding plays a significant role in the long-term outperformance of dividend-paying stocks. By reinvesting dividends back into the company through dividend reinvestment plans (DRIPs), investors can benefit from the growth potential of both the stock price appreciation and the increasing dividend payouts over time. This compounding effect can lead to substantial wealth accumulation over the years.- The historical outperformance of dividend-paying stocks underscores the importance of including them in a well-diversified investment portfolio. By focusing on companies with a track record of paying dividends, investors can potentially enhance their returns, reduce overall portfolio risk, and benefit from the power of compounding in the long run.
