Chloe Lutts Jensen, Chief Analyst of the Cabot Dividend Investor and our expert authority on the subject of dividends and distributions, penned an enlightening Cabot Wealth Advisory article today on the performance of high-quality dividend-paying stocks during downturns.
Ms. Jensen cites some eye-popping numbers generated by the 2008 stock market collapse. The S&P 500 Index dropped 37%, but the S&P Dividend Aristocrats Index declined only 22%. To review, the Aristocrats Index contains over 50 companies that have increased dividends every year for 25 years or more.
The difference between a drop of 37% and 22% is huge when you consider the recovery needed to regain your losses: The Dividend Aristocrats Index had to rise 28% to reach its former peak, while the S&P 500 faced a climb of over 58% before it got back to breakeven!
History shows that a large portion of investor’s total returns are derived from dividends. Morningstar crunched the numbers going back to 1927 which indicated dividend income produces 41% of total returns from large-cap stocks, 35% of the total returns from mid-cap stocks, and 31% from small-cap stocks.
If you rely on regular income from your investments, high-quality dividend payers are best for maintaining a steady income during troubled times in the market. The stocks lose less of their value during corrections, they’re less volatile, and they keep paying you regardless of their stock price fluctuations.
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This is an excerpt from Cabot Benjamin Graham Value Investor, which features the very best undervalued stocks to buy right now. Analyst J. Royden Ward tells you exactly which undervalued stocks to buy and when to take profits. This advisory is ideal for conservative investors.