Day 3: The Dividend Key – High Dividend Stocks

As a dividend growth investor, I am not necessarily after the highest yields. I tend to look for dividend growth as opposed to just yield. That being said, high dividend stock investing has proven to be a positive strategy. Jeremy Siegel, who is famous for his book, The Future for Investors ^[1], studied the S&P 500 from 1957 to 2002 by breaking stocks into 3 groups: highest dividend stocks, lowest dividend stocks, and the entire S&P 500. His results are presented in the chart below:

^[2]Click to Enlarge

The cool thing is that the highest dividend yield stocks provided the highest returns with lower risk than the lowest yielding stocks. The other interesting thing is the lowest yielding stocks did worse than the S&P 500.

I think this one is important to implement as an index product or with a large basket of stocks. The risk can be higher with individual high yield stocks due to specific-company risk. However, as a whole group the high dividend stocks obviously has provided good returns with limited risk over the years.

Source: Tweedy Browne Company LLC (link opens a .pdf document) ^[3]

(Photo Credit: daniel wildman ^[4])

Google+ ^[5]