There is a great new article in this month's edition of Fortune called Dividends for the Long Run. It points out that this past year has proven to be the worst for income investors for more than three generations and that dividend payouts are set to fall by the worst percentage decline since 1938 because companies want to maintain their cash levels just to be safe in case the recession proves longer or more unpleasant than it has already shown itself to be.
The central position of the piece, however, is one that I've been telling you for almost ten years - companies that pay large dividends have consistently outperformed their counterparts for all of recorded history. Dividend paying stocks also display lower volatility, making the emotional journey of holding them less stressful. The author quotes Ned Davis Research, which said companies that increase or begin paying dividends have returned 9.5% a year compared to 6.8% for the total S&P 500 since 1972. That difference of 2.7% may not seem small, but over the 37 years the study covered, the result for someone investing $10,000 a year would be an extra $1,232,982 in wealth due to the power of compounding! (The S&P investor in the research ended up with $1,423,507 whereas the dividend investor had $2,656,489, or nearly 87% more money.) The results are even more shocking when you look at investors that only bought non-dividend paying stocks. After investing $10,000 per year for 36 years, they would have lost money after factoring in inflation!
You can read a lot more about how to profit from dividends in these great resources, articles, and guides:
Why Boring Is Always More Profitable: How the Research of Dr. Jeremy Siegel Proves that Nearly 99% Of After-Inflation Gains Comes from Reinvested Dividends
All About Dividends: Your Complete Guide to Understanding Everything About Dividends and How They Work
Income Investing for Beginners - a 10 Part Guide to Living Off Your Money
Why Dividend Paying Stocks Tend to Fall Less During Bear Markets: The Reasons Stocks with Dividends Are Often More Stable Than Non-Dividend Paying Stocks
The #1 Way to Recover from Big Stock Market Losses: How You Can Combine Cash Dividends with Dollar Cost Averaging to Make Up Losses
Watch Out for the Dividend Trap: When High Dividend Yields Spell Trouble
How to Use Dividend Changes to Generate Big Capital Gains: A Nice Trading Strategy for New Investors
One Trick to Tell If Stocks Are Undervalued: Comparing Dividend Yields to Treasury Bond Yields
Don't Join the Capital Gains Cult: Focusing on Dividends Over Capital Gains Can Lead To Much Bigger Gains in Wealth