Dividend Paying Stocks: 2 Major Advantages Every Investor Should Know

By David I. Templeton, MunKNEE.com

The following article was written by David I. Templeton (disciplinedinvesting.blogspot.com) but re-posted on MunKNEE.com

An attractive aspect of owning dividend paying stocks, specifically, dividend growth equities, is the fact they tend to hold up better in down market environments. The favorable result from this characteristic is it takes a smaller upside return to make up the losses incurred in a market decline.

The recent downturn in the equity markets from early last year, the favorable performance of dividend paying stocks is… evident. For the year-to-date period, both the iShares Select Dividend ETF (NYSEARCA:DVY) and the SPDR Dividend ETF (NYSEARCA:SDY) are outperforming the S&P 500 Index as seen in the chart below. During the market pullback from December 31, 2015 through February 11, 2016, the dividend focused ETFs held up significantly better than the S&P 500 Index itself. As the market has recovered, the dividend paying indexes are maintaining their outperformance and have recovered the losses incurred in the pullback.

Chart 1

Just looking at all the dividend paying stocks in the S&P 500 Index, for the first two months of the year, S&P Dow Jones Indices reports the average return of the payers was down 2.71% versus the non-payers being down 7.81%.

Chart 2

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