Thursday, February 19, 2009
“Follow the Juicy Dividends.” That’s what “Businessweek” columnist Gene Marcial advocates in his February 23 “Inside Wall Street” column (Sorry I can’t find the link). In the article he points out that investing for dividends alone has not shown to be a superior investment strategy. He cites research from the Ned Davis organization that shows that it’s not just dividends; it’s rising dividends that matter. In this regard, we are in complete agreement with the article. Our research and experience over the years has convinced us that rising dividends from financially strong companies is not only a winning combination in the good times, but a solid bulwark in tough times like those we are going through now. Of course rising dividend stocks fall in the bad times, but they don’t go down as much, and they are among the first to recover. Mr. Marcial cites Ned Davis research that every investor should note: “. . . companies that have increased dividends for at least five years beat the market in every year from 1972 to 2008." During that time, the dividend growers produced a total rate of return of 8.9% while the S&P 500 Index grew by only 6.2%. As an aside, companies that maintained a fairly steady dividend grew at 6.3%. Rising Dividends matter and the key to success is not just focusing on companies that pay dividends, but on companies that have a history of increasing their dividends. The final filter is to analyse current financial results to assure that future dividend hikes are probable. There will always be surprises, but if you can keep the companies that stop increasing their dividends to a minimum, your portfolio will still do well.