At Sure Dividend, we are huge proponents of investing in high-quality dividend growth stocks. Among the thousands of dividend stocks out there, investors can focus on the “cream of the crop”: the Dividend Aristocrats, and the Dividend Kings.
The Dividend Aristocrats are a group of stocks in the S&P 500 Index with 25+ consecutive years of dividend increases.
There is an even more exclusive club than the Dividend Aristocrats — the Dividend Kings, a list of just 22 stocks with 50+ consecutive years of dividend increases.
The reason why we are so adamant about dividend growth stocks is simple.
Research has shown the Dividend Aristocrats have consistently outperformed the S&P 500 Index, over the long term. According to Standard & Poor’s, the Dividend Aristocrats produced annualized returns of 11.2%, compared with annual returns of 7.8% for the broader S&P 500 Index.
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Earning a place on the Dividend Aristocrats list is a great sign that a company has durable competitive advantages and a strong business model.
There are many financial products that investors can build a portfolio around. At Sure Dividend, we have a particular fondness for dividend stocks. But annuities are another popular financial vehicle, utilized by millions of Americans.
This article will compare-and-contrast dividend stocks versus annuities.
Why Invest In Dividend Stocks?
Given the returns generated by dividend stocks mentioned in the opening paragraph, a better question might be: why not invest in dividend stocks?
Noted Wharton professor Jeremy Siegel calculated that $1 invested in the stock market in 1802, would have grown to $8.8 million in 2003. Meanwhile, the same $1 invested in bonds would have grown into $16,064 by 2003, while $1 in gold would amount to just $19.75.
Even better, stocks that pay dividends (and raise their dividends on a regular basis) have proven to outperform stocks that don’t pay dividends. Dividends provide a buffer against falling markets, and help boost returns even further during bull markets. In 2008, the worst year of the Great Recession, the Dividend Aristocrats Index declined 22%, while the S&P 500 declined 38%.
The list of Dividend Aristocrats is balanced across market sectors.
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The highest allocation of the Dividend Aristocrats is in the consumer staples, industrials, and healthcare sectors. This should come as no surprise, as these industries enjoy steady product demand from year to year, even during recessions.
Not all stocks choose to pay dividends to shareholders. On the other hand, many stocks do pay dividends, and these are the types of stocks we focus on at Sure Dividend. In particular, we frequently recommend investors begin their search with the Dividend Aristocrats.
The benefits of dividends can be overlooked, particularly during bull markets, such as the current market rally that has gone virtually uninterrupted since the end of the Great Recession. Investors have a tendency to dismiss dividend stocks as boring, especially when markets keep setting new highs. But recessions do happen, and by several economic measures, the U.S. stock market appears to be overvalued.
