How to Select Dividend-Paying Stocks

Chasing yield can lead investors to risky corners of the market. The past decade is littered with instances of dividend traps

Dan Lefkovitz 20 July, 2018 | 9:16AM

Investors across the globe prize dividend-paying stocks for both income and total return. Dividends demonstrate balance-sheet strength and a commitment to shareholders. Studies show that reinvested dividend payments contribute a substantial portion of long-term equity market returns.

Several academic studies have pointed to the long-term performance advantage of dividend-paying stocks. Yield is sometimes identified as a “factor”, a driver of excess return, while others believe that dividend payers do well because they tend to occupy the lower-priced portion of the market.

In any case, the track record is strong. Investing in the high-yield portion of the equity market tends to be a winning strategy across the globe. Meanwhile, non-dividend payers underperform the market.

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About Author

Dan Lefkovitz

Dan Lefkovitz  is strategist for Morningstar’s Indexes group

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