Investors are concerned about a Lehman-like collapse in Europe and are spooked by the S&P’s downgrade of America’s credit rating. DJIA went down by 5.6% and the S&P 500 index lost 6.7%. It isn’t a surprise that the S&P 500 index underperformed the DJIA during this downturn. The constituents of DJIA are larger, more stable companies with larger dividend payments. High dividend stocks perform better than other stocks in the long-run.
We also prefer high dividend stocks over long-term treasuries. The 10-year treasury bond has a 2.3% yield to maturity at this moment. The bonds are performing spectacularly in this down market, but over the next 10 years they aren’t good investments. An investor who bets $100 on a high dividend stock that yields more than 5% will perform better than the 10-year treasury holders if the high dividend stock doesn’t go down more than 25% over the next 10 years. We don’t think that’s very likely for a diversified portfolio of high dividend yielding stocks. That’s why we like high dividend stocks.
The 15 Dow components with the highest dividend yield outperformed the market by nearly 6 percentage points this year. See the complete list of these stocks here.