Money For the Rest of Us

Does Dividend Investing Still Work?

Feb 14, 2024

This podcast explores the performance of dividend-paying stocks compared to non-dividend-paying stocks over various time periods. It discusses the reasons behind the recent outperformance of non-dividend-paying stocks, the impact of dividend smoothing, and the role of payout ratio and return on equity in dividend strategies. The podcast also highlights the benefits of including dividend strategies in a portfolio, such as stability and diversification, and mentions specific investments and tools like LinkedIn Jobs and Betterment.

28:05

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Quick takeaways

Dividend growers and initiators have historically outperformed dividend cutters or eliminators.

Non-dividend paying stocks have outperformed all other categories in the past 20 years, attributed to growth companies' ability to generate higher profits and the rise of indexing.

Deep dives

Dividend Investing and its Impact on Stock Prices

When companies like Meta initiate or raise dividends, it signals their confidence in long-term prospects. Dividend smoothing is a common practice, where companies aim for stable payouts and increase dividends only when they can sustain them. Research shows that dividend growers and initiators outperform dividend cutters or eliminators. However, over the past 20 years, non-dividend paying stocks have outperformed all other categories, including dividend growers and initiators. This may be attributed to growth companies' ability to generate higher profits and the rise of indexing, which has shifted investor preferences.

Introduction

2min

Dividend Investing and Company Signals

5min

Dividend-Paying Stocks vs. Non-Dividend-Paying Stocks

8min

Performance of Dividend Strategies and the Dominance of Growth Companies

3min

Valuation, Indexing, and the Performance of Growth and Dividend Stocks

10min

Benefits of Dividend-Oriented Strategies and Importance of Diversification

2min

Stocks that grow their dividends have outperformed non-dividend-paying stocks over the long-term, but not in the past 5, 10, and 20 years. Why are non-dividend paying stocks outperforming dividend growers, and will it continue?

Topics covered include:

What message do companies say when they initiate, grow, or cut their dividend
What is dividend smoothing
How have dividend payers performed relative to non-dividend payers
Why have non-dividend payers, which are primarily growth stocks, outperformed dividend payers
How the payout ratio and return on equity impact dividend strategies
What are reasons to include dividend strategies in your portfolio

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Show Notes

The dividend puzzle by Fischer Black—The Journal of Portfolio Management

Can Dividend Investing Rise From the Dead? by Jon Sindreu—The Wall Street Journal

Einhorn Says Markets ‘Fundamentally Broken’ By Passive, Quant Investing by Matthew Griffin—Bloomberg