By: Larry MacDonald
I was digging around for information on companies that regularly raise their dividends and came across a document published by Mergent Inc. It has a rather impressive table showing how dividend-growth stocks have outperformed the S&P 500 Index over 1-, 3-, 5-, 10-, 15- and 20-year periods with less volatility.
The table below contains numbers for the 15- and 20-year periods (ending 2008). As can be seen, the dividend-growth approach beats the S&P 500 by about 1.5 percentage points a year in both periods. The one qualm is uncertainty over Mergent’s choice of S&P 500 Index. It would be appropriate to do the comparison with the total return S&P 500 yet I could not find in the document an explicit reference to using that version.
Regardless, a 9.73% average annual return in dividend growth stocks over 20 years is laudable in itself. So is the 8% average annual return over the past 15 years. And with dividend yields currently still elevated relative to historical norms in the aftermath of the financial crisis of 2008, the return from owning dividend-growth stocks over the next 15 to 20 years could potentially be even better than what is shown below.
7 Responses to “ Dividend-growth stocks outperform ”
Did Mergent count returns after a company was judged to be a dividend-growth stock, or did they identify present dividend-growth stocks and look at past returns? There is obviously a strong correlation between successful businesses and dividend growth. Done incorrectly, such a study could amount to saying that good businesses have good past returns.
By Michael James on Jul 1, 2009
Larry, you made a mistake:) 13.1% is the standard deviation over 20 years. According to the chart, the annualized return over 20 years is 9.73%.
By Dustin on Jul 1, 2009
Dustin
Thanks for pointing it out. Fixed up now. Maybe it’s time for a vacation.
By Larry MacDonald on Jul 1, 2009
Would be good to see same research for TSX index.
By John Gan on Jul 2, 2009
Dividend stocks make for a great investment. Check out http://dividendsvalue.com/ It is a U.S. site, but it has a lot of good info!
By Jim on Jul 2, 2009
Hello all
Great comments everyone… if you guys are looking for a company who has a dividend based focus have a look at the attached link.
http://serviss.ca/rulesofinvesting.html
The company I am referring to is Value Partners Investments… If you would like more details, feel free to contact us at the Peacock Sheridan Group.
Dustin Serviss
FInancial Advisor – Kelowna BC
By Serviss on Jul 4, 2009