Dividend-paying stocks have historically outperformed the market. Between 1927 and 2014, stocks that pay a dividend have beaten the total market by about 0.7 percentage points annualized. Stocks in the highest-yielding 30% of the market have done even better, outperforming by about 1.5 percentage points annualized. However, high-yielding stocks can be risky. The highest-yielding stocks have had greater volatility than the broader market because some of these stocks are distressed and may offer an attractive yield as compensation for risk.
The average stock in the dividend portfolio had a return on invested capital of 14.0%, compared with 12.4% for stocks in the S&P 500. Companies that are able to increase dividends for 10 consecutive years typically have strong brands.
The top-ranking dividend-yielding funds are:
These funds offer attractive and fairly stable returns, but as investment class they rank below ETFs in industrial sectors.
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