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Posted on 12 May 2011 | 5,425 views

Dividend vs Non-Dividend When the Stock Market Crashes

Throughout the 1950s and into the mid 1980s, investors used to own stocks mainly for their dividends. Investors looked for companies that paid consistent “Dividends” out of profits and if the stock they owned appreciated in price, that was an added incentive.

When the Bull Market took off in the mid 1980s, all that changed when many investors started investing purely for price appreciation. That strategy empirically failed miserably when many of the tech stocks got crushed in the “Dot-Com Crash” of 2000-2002.

Even in a rising market, investing in “Dividend Stocks” is still important for a diversified portfolio. Historically, Utilities and Financials have been investors favorites for dividends but since the “Financial Credit Crisis” began, most of the financial stocks have substantially cut or suspended dividend payments.

However, there are still many high-quality dividend paying stocks in Utilities, Consumer Staples, Tobacco and Healthcare which offer excellent long-term opportunities.

With dividend investing returning to the forefront, especially with interest rates at historical lows, here are some good reasons to own dividend stocks.

* Valuations of dividend paying stocks look reasonable relative to the rest of the stock market.
* When stocks sell-off again, dividend stocks historically hold their value better.

Dividend Versus Non-Dividend Paying Stocks

Dividend Versus Non-Dividend Paying Stocks










  1. Dividend stocks have outperformed non-dividend stocks in bear markets. For example in during 1981-82, 1990 and 2000-02 market crashes along with the 2008 financial crisis, dividend paying stocks performed better than non-dividend payers.
  2. In 2008 — dividend stocks fell 39% compared to 45% for non-dividend payers.
  3. Companies that increased or started paying dividends have returned 9.5% yearly on average since 1972.
  4. Dividend stocks in the Consumer Staples, Tobacco, Utilities and Healthcare sector holds potential growth for the future.

Here are the “5 Top Dividend Stocks” with payout ratios under 75% as of May 12, 2011.

AT&T (Stock Symbol: T)
Dividend Yield: 5.4%
Payout Ratio: 52.32

Eli Lilly & Company (Stock Symbol: LLY)
Dividend Yield: 5.1%
Payout Ratio: 42.75

PPL Corporation (Stock Symbol: PPL)
Dividend Yield: 5.0%
Payout Ratio: 63.35

Cincinnati Financial Corporation (Stock Symbol: CINF)
Dividend Yield: 5.1%
Payout Ratio: 68.70

American Electric Power Company (Stock Symbol: AEP)
Dividend Yield: 5.0%
Payout Ratio: 68.04

For a complete list of the “Top 100 Dividend Paying Stocks“, visit the IntelligentSpeculator for all stocks recommended for May 2011.

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