At Sure Dividend, we advocate long-term investing in high-quality dividend stocks.
This is because there’s a swath of evidence to suggest that dividend stocks outperform. More specifically, dividend growth stocks outperform.
There is no better example of this than the Dividend Aristocrats – a group of elite dividend stocks with 25+ years of consecutive dividend increases.
The long-term performance of the Dividend Aristocrats is shown in the following graph.
Source: S&P 500 Dividend Aristocrats Index Fact Sheet
The Dividend Aristocrats have handily beaten the markets, delivering returns of 10.85% per year over the past decade compared to 7.51% per year for the S&P 500 index.
While the Dividend Aristocrats provide one piece of evidence, there are many other reasons why dividend stocks – and particularly dividend growth stocks – are our favorite asset class for long-term wealth building.
This article will provide a detailed summary of why dividend stocks make better investments than ‘just growth’ stocks that don’t pay dividends. We’ll also show you why dividend growth stocks allow you to harness the best of both dividend stocks and growth stocks, and why we prefer them over either of the alternatives.
The Outperformance of Dividend Stocks
Dividends have historically been a strong contributor to the long-term total returns of the broad S&P 500 index – which includes both dividend-paying stocks and non-dividend-paying stocks.
Between 1930 and 2015, the contribution from dividends to the S&P 500’s total return was 43%. The following image shows how the figure has varied over time.
Source: Hartford Funds – The Power Of Dividends
It follows that dividend-paying stocks should have strong performance on an individual basis when compared to stocks that do not pay dividends.
As the following diagram and table show, this is exactly the case. Each and every quintile of dividend-paying stocks (when stratified by yield) has outperformed non-dividend-payers while also delivering higher risk-adjusted returns as measured by the Sharpe Ratio.
