The Positives of Dividend Investing

Many active investors dismiss dividend stocks, but they may deserve another look. These are some of the positives of dividend investing.

Dividends Reduce Volatility.

Dividend income helps offset losses in the real value of your portfolio in inflationary times. They also provide a floor for your investment income during recessions. Many dividend-paying companies are in non-cyclable sectors of the economy, which are less affected by recessions.

They generally have more consistent earnings, which is one reason why they can reliably pay dividends in the first place. They are nearly always more stable than most growth stocks and many value stocks that don’t pay dividends.

Dividends Increase Liquidity

Dividends are distributed on a set schedule, allowing investors to include them as dependable income in their financial planning. Most companies that start paying dividends never stop. Proctor & Gamble has paid dividends every year since 1891, including both World Wars, the Great Depression, and the Great Recession.

Overlooked Value

Dividends comprised around 40% of the S&P 500’s annualized total return from 1936 to 2022. Dividends give you returns on your investment without selling your stock. Dividend Reinvestment Plans (DRIPs) allow you to automatically reinvest your dividends to buy more shares in the company instead of taking cash disbursements.

Dividends’ Influence on Share Price

Just the announcement that a company will start paying dividends will often increase their share prices. Conversely, a company that announces that it will stop paying a dividend is considered a big warning sign that the company is in trouble, leading to a sell-off in its stock. This can also apply to a company increasing or decreasing its dividend, depending on the circumstances.

The Dividend Aristocrats

The “Dividend Aristocrats” are the “best of the best” dividend-paying companies. They demonstrate the positives of dividend investing at its finest. To be considered for the list, companies must meet several criteria. The criteria for 2024 include:

• Be listed on the S&P 500;
• Have 25 or more consecutive years of dividend increases, not just dividend payouts;
• Have a float-adjusted market cap of at least $3 billion;
• Average at least $5 million in daily share trade value for the three months prior to the quarterly rebalancing date.

There is no set number of companies on the Dividend Aristocrat list. All companies that meet the above criteria are included on the list, and companies that no longer qualify are removed. There are currently 68 companies on the Dividend Aristocrat list, the most since the list was founded in 1989.

The Top 10 Dividend Aristocrats as of March 2024 are:

1. 3M (MMM)
2. Archer-Daniels-Midland (ADM)
3. NextEra Energy (NEE)
4. PPG Industries (PPG)
5. ADP (ADP)
6. Atmos Energy Corp. (ATO)
7. Medtronic (MDT)
8. Johnson & Johnson (JNJ)
9. S&P Global (SPGI)
10. Sysco (SYY)

A dividend-paying company doesn’t need to be on this list to benefit your portfolio. You should be able to use the guidelines in this article to do your own due diligence and pick the stocks that best fit your investment strategy.