Replies to post #1184 on Dave's Dividends Payers

[bar1080]

Almost always your best "dividend stock" won't be a dividend stock. A diversified portfolio of blue chips such as an S&P 500 index fund will usually do much better. Nowadays with free or low priced commissions you can always sell off a few growth shares if you need some cash. Who gives such advice? Warren Buffett for one.

Generally RUN from any stock yielding 6% or more, and especially anything displaying a double digit yield. How do they achieve such payouts? Often with gimmicks like Return of Capital, oddball option schemes, and of course ... dangerously high leverage.

Unlike 98% of local "players," I actually know what I'm talking about.

[bar1080]

Q. Should I buy dividend paying stocks? A._Perhaps, but with this advice:


Buy high yield stocks but not the very highest yielders. This information about high yield investing and its limits should be of interest to all investors. See section 3 below.

Conclusions

In the preceding pages, we examined a number of papers and empirical studies from academics, economists and investment professionals that analyzed the relationship between dividend yield and investment returns over time. The following conclusions can be drawn:

1. Over the 101-year period from 1900-2000, one study demonstrated that an investment in a marketoriented equity portfolio in both the U.S. and the U.K. that included, most importantly, reinvested dividends, would have produced nearly 85 times the wealth generated by the same portfolio relying solely on capital gains.

2. There is substantial empirical evidence to support a direct correlation between high dividend yields and attractive total returns.

3. Three of the studies found that the best returns were not produced by the highest yielding decile or quintile, but rather by the next highest yielding one or two deciles, or the next highest yielding quintile.

4. At least one study demonstrated that the returns associated with market-beating high dividend yield stocks were also less volatile in terms of the standard deviation of returns.

5. In several of the studies, high dividend yield stocks also sold at low ratios of price-to-book value and/or price-to-earnings.

6. The return advantages of high dividend yield stocks held for equity securities in both the U.S. and
internationally.

7. At least one study found that high dividend yield stocks outperformed other value strategies as well as the overall stock market return in declining markets.

8. The reinvestment of dividends from high-yield stocks can dramatically shorten the time necessary to recoup losses in declining markets.

https://www.tweedy.com/resources/library_docs/papers/HighDivStudyFUND2014Web.pdf