The payouts often aren’t about income, and that’s all right
By Spencer Jakab, The Wall Street Journal, June 30, 2025
…
Data from the past 50 years compiled by Ned Davis Research shows that the annualized return of dividend payers in the S&P 500 was 9.2%, compared with only 4.3% for nonpayers, and with less choppiness too.
The chart below hides that dividend paying stocks returned 9.2% with a standard deviation of 16%. Far lower than nonpayers with a return of 4.3% and STDEV of 22%.
Dividend payers would have left you with 10 times as much wealth before taxes over that time as nonpayers. They also easily beat an equal-weighted basket of all companies in the index…
“Value” is present because dividend payers have profits from which to pay them. And those payouts are meaningful enough as a percentage of their price to land them in an income fund.
And “quality” is often there because dividend payers are forced to be more judicious about any cash they don’t share. One detail “income” funds miss, unfortunately, is that the same applies to companies that return cash to shareholders in other ways such as stock buybacks or paying down debt… [end quote]
Excuse me, stock buybacks and paying down debt are NOT the same as paying a dividend to shareholders! A dividend is a dividend. Period.
I would make a caveat for companies that pay out a higher dividend than their free cash flow and borrow money to do it. A close reading of the financial statements and/ or prospectus will reveal that.
The article does mention Berkshire Hathaway as an exception to the rule.
Wendy
I suppose it would make sense that dividend paying stocks are doing better than non payers. Because the dividend paying stocks are producing enough profit to both pay a dividend and to reinvest in the business.
But why not simply compare to the standard non-equal weight S&P500?
Standard non-equal weight S&P500 - 11.62% annual return over 50 years, standard deviation 15-16%
Dividend payers - 9.2% annual return over 50 years, standard deviation 16.8%
Non-dividend payers - 4.3%, 22%
Also, it’s generally easier and lower cost to simply invest in the whole regular S&P500.
DIdn’t read the article, this is nothing new. I"ve read about it multiple times. Even one more separation can be added, dividend growing stocks (those that increase their payout every year) do better as a subset than those that pay a dividend and don’t regularly increase it.
And on that point, It is also worth noting that 5 of the magnificent 7 pay an (anemic) dividend. Dividend stocks and Value stocks are not synonymous.
Hawkwin
Who now wonders if there is an index of growth stocks that just happen to pay dividends as those might have the best history of returns. All the ones he sees are more focused on the dividend than the growth.
Well, that’s probably because the stock price went up too quickly. More quickly than the dividend has gone up. For example, I bought UNH shares a while back (10/8/08) for $20.05, and over the last 12 months it paid a dividend of $8.84 (that’s 44% of my original purchase price). The dividend rose almost every year since then, but the stock price rose even more. And another example, one of the mag 7, I also bought Apple shares on 10/8/08 for $90.27 (split adjusted is $3.22), and Apple didn’t pay any dividend at the time. Today the dividend over the past year is $1.04 (that’s 32% of my original purchase price of $3.22).
And I agree, it is clear that just because a stock pays a dividend, it isn’t necessarily a value stock.
Not really, and of course UNH is not likely a good example since it isn’t a mag 7 and it very likely paid a much better dividend when you purchased it than most if not all of the mag 7 stocks - most of which have always had anemic dividend yields.
Take Nvidia. When it was trading less than $4 in 2020, the dividend was just $0.016. Today it is just $0.04 (it increased just once in the last 5 years). Even if the stock price had remained at $4, that would still be a terrible dividend. I don’t even know why they bother with a quarterly dividend of $0.01 a share. It would seem more expensive to even bother with the paperwork over such a small amount.
I think only Apple came close at one point - I recall it once had a yield of around 2% (AI confirms such was 2014). Today, Microsoft has the best yield at 0.7%. AI claims the last time it was above 2% was 2009 (probably only due to the cratering stock price).
Nvidia distributes almost $1B of dividends each year. I doubt the paperwork expenses comes anywhere close to that! It’s an interesting question though, how much do the exchanges/brokerages/accountants/SEC/etc charge to handle quarterly dividends?
