Tuesday , 27 September 2016


Dividend Paying Stocks Have 2 Major Advantages – Here They Are

An attractive aspect of owning dividend paying stocks, specifically,stock-indices-3 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. [Here are the details.]

By David I. Templeton (disciplinedinvesting.blogspot.com) – an edited ([ ]) & abridged (…) version of the original to ensure you a fast & easy read

…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.

…[F]inally, 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%.

Source: S&P Dow Jones Indices

As investors evaluate dividend strategies, they are cautioned that each is different in significant ways. For example:

  • the iShares Select Dividend ETF has 34% of its stock weighting allocated to the utilities sector while at the same time having only 2% exposed to technology;
  • the SPDR Dividend ETF is a bit less concentrated as utilities account for 11% of its stock weighting. The largest sector exposure is financials at 24%. Again, similar to DVY, the technology sector weighting is only 2%. For comparison purposes, the broader S&P 500 Index has a 21% weighting in technology and a 3% weighting in utilities.

The attractive aspect of investing in dividend paying investments is their favorable qualities exhibited in down markets. Conversely, in a market that is tilted towards ‘risk-on’, the dividend paying stocks do have the propensity to trail the broader market….

Disclosure: The original article, as posted on SeekingAlpha.com, may have been slightly edited ([ ]) and abridged (…) by the editorial team at munKNEE.com (Your Key to Making Money!)   to provide you with a fast and easy read.
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