High Dividend Stocks – Can They Beat 10-Year Bonds Or the Stock Market?

High dividend stocks are attractive options for fixed income and dividend investors. These are extraordinary times in terms of long-term bond yields. On the one hand, investors are skeptical about stock market returns after a poor showing during the past decade. On the other hand, bond yields are so low that it does not feel right to invest in long-term bonds. Currently, the 10-year bonds yield a measly 2.4% and real yields are below 1%. A ballooning US budget deficit and the threat of inflation keep several investors away from bonds. Some of these investors instead head to the stock market and invest in high dividend stocks. Is this a good strategy? Can high dividend stocks beat 10-year bonds or the stock market?

This is not the first time in history when 10-year bonds yield less than 2.5% and the stock market performed terribly in the previous 10 years. We were in a similar situation right after the great depression. Between May 1938 and October 1950 10-year bond yields were below the 2.5% threshold. We can take a look at the performance of the stocks with the highest dividend yield during this low 10-year interest rate period and have an idea about the future performance of high dividend stocks. Insider Monkey compiled the list of top 20 dividend yielding stocks each year among the largest 200 stocks. The largest high dividend stocks are usually more mature companies with stable businesses and sufficient cash flow to support high dividend payments. This way, we exclude distressed companies which became high dividend stocks simply because of large declines in their stock prices. Usually dividend yields are correlated within each industry; to provide adequate diversification, we chose to have 20 large cap stocks in our high dividend stock portfolio.

High Dividend Stocks

During the 13 years between 1938 and 1950, when 10-year interest rates were below 2.5%, high dividend stocks returned an average of 18.1% (including dividends) whereas value-weighted market returns (including dividends) were only 12.7%. High dividend stocks not only managed to outperform the market by 5.4 percentage points per year, they had higher returns in 11 of the 13 years. The worst annual return of high dividend stocks was -6.7% vs. -11.2% for the market. High dividend stocks provided protection when the market was down. They beat the stock market in all down years. They also beat the stock market every time the stock market increased by more than 20%. If the stocks repeat the same pattern in the following years, investors chasing high dividend large cap companies will manage to beat both the bond and stock markets by a large margin. That’s why we like high dividend stocks.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

The 10 Most Common Genetically Modified Foods

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

Top 6 Cities For The Ultra Rich to Live in Comfort

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!