The Best Argument You Can Make For Dividend Investing

Why Dividends Matter More Than You Think

Author

Dividend Dominator
May 13, 2024

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👉 The best argument for dividend investing

👉 Financial freedom is just a math equation

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The Argument for Dividend Investing

Dividend stocks are like the Toyota’s of the stock market.

They’re not flashy at first glance, but use them long enough and you’ll realize they’re one of the most reliable things you can own long term.

Let’s take a trip down memory lane.

Dating back to 1960, dividends can be attributed to 85% of the cumulative total return of the S&P 500 index.

Maybe having $4.32 million extra in retirement isn’t a strong enough argument for you…

Maybe doing this over a 63 year period with only a $10,000 initial investment doesn’t convince you that dividends are actually worth your time in the long run…

Perhaps if we broke it down by decade you’d be more convinced that dividends do matter and they do play a MASSIVE role in total return.

Let’s look at the S&P 500 index annualized by total return over the last 9 decades (including the 2020’s).

From the 1940s to the 2020s, dividend income has average 34% towards the total return of the S&P 500.

As you can see, in the 2000s the return for the S&P 500 was negative so total return doesn’t apply, but 34% of total return on average over each decade for the last ~80 years is nothing to laugh about.

Maybe dividends do matter after all?

But you’re probably still not convinced, so I’ll take it one step further.

Below you’ll find a chart visualizing the return of companies that:

  • Grew their dividend (Dividend Growers & Initiators)

  • Paid a dividend (Dividend Payers)

  • Maintained the same dividend policy (No Change in Dividend Policy)

  • Cut/eliminated their dividend (Dividend Cutters & Eliminators)

  • Didn't pay a dividend at all (Dividend Non-Payers)

Versus an equal weighted S&P 500 Index

The results? Dividend Growers lead the way at a 10.19% average annual return with a Beta of 0.89 which is less volatile than the market.

Higher return and less risk? I’ll take it.

After the financial crisis in the 2000s, companies started to focus more on holding cash as a margin of safety in case a recession were to happen again.

Another recession is inevitable, but when it will happen? Nobody really knows.

Since the Great Recession of 2007-08, the cash being held by corporations almost 4x’d on average.

What does this mean?

It means a softer landing for companies during economic hardship.

It means more cash on hand to expand the business or make acquisitions.

And it also means more cash on hand to initiate a dividend or grow existing dividends.

But enough about the numbers…

Now that you know the math behind dividend investing.

Let’s talk about the intangible benefits of this strategy:

1) Dividend investing forces you to become a long term investor

If you don’t hold a stock for a long period of time, you won’t earn the dividend. Not only that, but you won’t give compounding time to start working for you. Dividend investing forces you to buy stocks with the intention of holding for 10+ years and therefore forces you to put a lot of thought into what you’re buying.

2) Dividend investing spits out results in real time

One of the best parts about this strategy is that you can see your dividend income increase with every buy. This subconsciously keeps you on track and consistent. With stocks that don’t pay a dividend, you don’t get the reward until you sell and “realize” your gains (if any). With dividend investing, you get that dopamine hit every time you buy a share.

3) Dividend investing changes the way you think about money

When I first started dividend investing, it completely changed the way I viewed money. I know saw money as a tool (its intended use) instead of just a something I could trade to buy “things”. Money’s true value lays in its ability to earn you more money. When you’re divided investing, you’re doing exactly that.

See you in the next one!

Alex (The Dividend Dominator)
Founder and CEO of Dividend Domination Inc.
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