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When I sought a good plan for investing during the 1960s, women were discouraged from having too much interest in the male-dominated Investment world. Then I discovered dividend investing, and found that income is not only a path to steady returns, but also a source of comfort when the market hits maximum turbulence, as it has recently.
I discovered this strategy has also become popular with people who are planning to retire early and need income—but also growth. Income from the S&P 500 stock dividends over the last 25 years( 2004-2024)has grown an average percentage of 7.33%.
While this includes both capital appreciation and dividend income, it’s notable that dividends contributed significantly to the total return.
Coincidentally, the strategy has seen the same level of annual dividend growth. When you’re getting that kind of income and it’s growing, it’s possible to outpace inflation.
The comfort and consistency of a dividend income stream gave me the confidence I needed to be a successful investor. When a company that’s actually made it through the pandemic, and the great financial crisis earlier in the century, and continues to pay its dividend, there is a pretty good chance that the company is committed to it.
The more challenging part of the analysis is to figure out what a company’s management and board philosophy is, beyond the dividend. Do they say they are committed to the dividend—that’s what you’re looking for. There’s something comforting about a strategy where income—even $1,000. a month extra is consistently delivered into my account.
It started with a book I read by the late Geraldine Weiss, known as “the Grand Dame of Dividends, —“Dividends Don’t Lie—”which changed the course of my investing strategy. She was also the first woman to launch a successful investment newsletter, now managed by Kelley Wright—Investment Quality Trends—consistently rated as one of the top newsletters. I learned to identify good value, blue chip dividend stocks with low downside risk. In her initial writings, Ms. Weiss used only her first initial—G. It was an attempt to conceal her gender—a sad commentary on the times, when women felt they had to bolster their credibility by obfuscating their identity.
https://www.stockscreening101.com/investing-strategy-dividend-yield.html
i also learned to gauge when a stock is undervalued or overvalued. The company may be an excellent one; a stalwart blue chip, but what is a good entry point to buy the stock? or for that matter, to sell it.
The time tested strategy of Dividend Investing still works fine today. How many remember the old Virginia Slims cigarette advertising motto, “You’ve Come a Long Way, Baby.” It was changed in the 1990’s to “Its a Woman Thing.” How bland—no verve— no panache.
Check out the S&P 500 dividend aristocrats; a stock market index composed of the companies In the S&P 500 index that have increased their dividends in each of the past 25 consecutive years
I share your interest in dividend-paying stocks, but one should not let dividends drive the investing bus. Declining companies often maintain or increase dividends to try to offset their poor stock price performance, and to keep their investor base. Somewhere out there, there really is a group of stocks of durable companies that would satisfy most moderate investors – that are able to both grow their business and increase their stock price, however slowly, and also pay a reliable dividend that goes up slightly every year. But even those may not all or always be candidates for investment, since one must also take into account the amount of taxes that will be paid on those dividends. Investing is not easy.
Thank you for your comments, Martin. There is a lot to consider, including financial strength of company and its ability to meet the payout. I look at the dividend history and Value Line ratings as well.
In my work with tax aide and Vita I have also noted many seniors who benefit from the zero percent tax rate on qualified dividends for taxable incomes up to $47,025 for single filers and. $94,050 for joint filers in 2024 tax year.
iIn addition, a good strategy for newcomers to the workforce, as an income boost to starting salaries.
One can also harvest long term capital gains to fill up that 0% bracket.
Not really a fan in particular of dividend stocks as an income strategy. I prefer to choose when to sell our stock funds and do so infrequently rather than follow regular forced sales generating dividends resulting in loss of stock value by the amount of the dividend. We do own many dividend paying stocks in our index funds as part of a total return approach and have no problem with them as part of the overall market index.
Go here to research dividend-paying stocks, ETFs, and Mutual Funds: https://www.dividendchannel.com/
The S.A.F.E 25.
Thanks Randy. Would list no more than 10 companies. This forces you to be disciplined on great companies, not just collecting nice-to-have or interesting candidates—making it easier to check up on each company periodically.
Marjorie – isn’t a significant consideration of choosing a dividend stock or fund is if the dividends are largely qualified?
A Qualified dividend meets specific IRS requirements allowing it to be taxed at the lower capital gains rates rather than the higher ordinary income rates. Investors can benefit from meaningful tax savings.
This is a good point and one rarely mentioned. It’s very common to see recommendations for total market index funds and their international siblings. But, note that not all their dividends are qualified. Meanwhile, much more if not all the dividends of a larger cap developed markets fund will be qualified. For that reason, if I could do it over, on the international side in our taxable accounts would hold such an index fund rather than the total international market. For example, compare iShares Core MSCI Total International Stock ETF (IXUS) and iShares MSCI EAFE ETF (EFA). In the US market the difference isn’t as big and I’d keep the total market index fund.
Of course EFA or a similar fund wouldn’t have international small caps or emerging markets stocks. I’d still hold these in tax protected accounts.
Dividend payouts are not income. The value of the Stock or NAV decreases in proportion to the payout. No wealth has been created, You now have a taxable event. In addition, high dividend payers tend to be large cap resulting in decreased diversification.
The desire to receive dividends is largely psychological.
Mark, that hasn’t been my experience, long term. Dividends have been very helpful in meeting IRS RMD requirements. One of my stocks yields 1.95% and shows an increase in value of 564% since 2008 when I first purchased. I have nine stock holdings with gains of at least 100% and dividends ranging from 1.31% to 4.91%.
A smart strategy for investors with fresh cash to put to work is to buy dividend stocks. They tend to represent good stock. Values and several sectors provide plenty of income while offering equity upside..
One risk is that a continued strong economy prompts the Fed to move even more cautiously than the markets now anticipate that could dampen the demand for dividend payers, but the negative impact on bonds could be more severe.
I agree with you Mark, but I hold SCHD (high div) in tax free Roth and use DRIP. It has many large, well known and well capitalized firms – not mirroring nearly every ETF or mutual fund holdings, i.e. 7 top 10 holdings are mag 7. I think of it as a diversification tool.
Mark, I believe my dividend portfolio would disagree with your conclusion, with an average 5.8% dividend, Yield on Cost of 7.9% and a current capital gain of 32%. I rather enjoy my ever growing dividend stream and its solid capital appreciation.
I have come to love dividend stocks as well, especially now that I am at an in-between place where I can’t figure out if I am unemployed or retired. The ones I have are not flashy, but they pay me consistently, even when the market is down and keep me from panicking. I do very little trading; I buy and sit on them. Between the individual stocks and the funds I have they comprise over 80% of my portfolio. The dividends from funds get reinvested and the dividends from individual stocks I take quarterly. I don’t know if that is considered a good strategy, but it seems to be working right now.
I think it’s a good strategy because it works for you. I’m in a similar place in life that I’ve always invested for growth, bit I’m considering starting to invest for dividends.
I’m thankful that Marjorie mentioned some books. Does annoying else have recommend books or websites to learn more
Building wealth through dividend investing hinges on identifying companies that can sustain and grow their payouts over long periods. Barrons weekly magazine consistently runs articles on dividend growth investing; .
I always check their speaking of dividends: column, I always find their information most useful and up to date.
Majorie…Based on your article, and my feelings that you are someone worth listening to, (based on your other articles,) I went to Amazon and found the current version of “Dividends Don’t Lie” for a great price…FREE. (I am an Audible member.) I will give it a listen this upcoming weeks…as I drive around on errands.
I have been intrigued by dividend investing, but not enough to take the time to really “dig deep.” The concept makes sense, but I have been VTI/VXUS person for a while now…since discovering Vanguard in 2013…and I am a “set it and forget it,” Jack Bogle devotee.
However, I just checked my 2024 1040, and last year I actually received $2,002 in Qualified Dividends and $3,125 in Ordinary Dividends…which had to come from VTI and VXUS. In my case they were all reinvested, but who knows, maybe I can use them as distributions later on, to offset inflation, should it become an issue.
Happy Sunday!
Great find and great price on book, Kevin. I also subscribed to newsletter, Investment Quality Trends for awhile so I could further educate myself in learning the criteria for choosing dividend stocks.
How do you all pick the dividend stocks? Individually or a mutual funds? I have the Vanguard high dividend yield index fund and it is not doing well.
I also have two Vanguard small cap funds and one is doing well, the other isn’t.
Recommend you check out The Best Dividend Funds article in Morningstar for complete overview. Available online. ETFs and Mutual Funds. See link below (reply to Kevin Lynch)
Is this the article?
https://www.morningstar.com/stocks/10-best-dividend-stocks
Best Dividend Funds—Morningstar. . Lists ETFs and Mutual Funds.
Kevin, See below link
https://www.morningstar.com/funds/best-dividend-funds?utm_medium=referral&utm_campaign=linkshare&utm_source=link
Added: I like individual dividend stocks as well, especially when a good opportunity presents and the price is right.
In his Of Dollars and Data blog, Nick Maggiulli wrote a detailed and well-researched post about “The Case for and against Dividend ETFs” on 2-27-24 (post 387). He stated that while dividend stocks have historically outperformed the S&P 500, dividend funds have generally underperformed the S&P 500 over the past 5 to 10 years. He outlines the pros and cons of dividend ETFs and who might or might not benefit from owning them. A very good post.
We do not any dividend ETFs, but do own some individual stocks that are dividend aristocrats or kings as part of our overall stock holdings.
Signed up for his Blog..
This is the 2nd or 3rd time this week I have seen/heard his name. I thought it sounded familiar…and it turns out I own one of his books, “Keep Buying.”
If we consider that the “Magnificent Seven” stocks have recently been about 35% of the value of the S&P 500 that is not surprising. These growth stocks have been the leaders for both the gains and recent losses. I do own dividend stocks and a dividend ETF. I concluded long ago that a diversified portfolio will not outperform the high flyers, whatever they are. Such a portfolio may avoid concentration risk and it did provide me with a higher “sleep number”. Each of us has different goals based upon age and risk tolerance. I recently read that the stock market runup has provided the best gains since 1970. Pretty great, but also historically unusual.
I echo what Marjorie said: “The comfort and consistency of a dividend income stream gave me the confidence I needed to be a successful investor.” I’d expand on that and add that such stocks provided the ballast and stability to my portfolio since 2008.
Gary, please see my reply to kt2062. Above. Thank you.
This post is timely for me and my overall investment strategy. As me and dear wife start the retirement planning journey in earnest, dividends and the role they play are beginning to take on a more important role. In the past when investing I focused only on the company’s potential to grow which was probably the right approach in my 30s and 40s. Now that we are approaching mid-fifties, I am taking a harder look at the portfolio and starting to scrutinize which holdings pay a dividend and how much of that I want to play a part in the portfolio going forward. Ideally, Id love to have SS and the dividend Income from the portfolio cover our day to day expenses when we fully take the retirement plunge. This was not on my radar a few years ago, now it is under evaluation. Thanks for such a timely topic.
Mike, thank you for your thoughtful comments. it’s especially important that you and your wife are thinking of your future plans at this advantageous time in your life, which auger well for your chance of success.
Some of the consumer staple stocks are cutting their full year outlook on mid-economic uncertainty, and there are still a lot of unknowns about how tariffs will be implemented.
There are some who say “buy the dips and time will bail you out—but I am more in the “nibbler”category and keeping my eyes open for my favorite dividend payers.
It’s been, what? 55 years since I’ve seen a cigarette commercial. You have come a long way baby https://youtu.be/da0EUKh-8cE?si=lUrl8OmJSGbZ3If1 🙂
LOL it was 1968–the last cigarette commercial.The jingle was heard everywhere. The women portrayed in ad were considered cool, sassy and stylish.Tempus fugit.
I digress but 1968 was. a memorable year for me. That was the year I graduated from high school and joined The US Army. Also the year we lost RFK and MLM.
It’s funny when you see this videos about commercials from the past, and you can sing along or quote most of them. And people don’t think they can be “indoctrinated” by TV ads. What did Joseph Goebbels, Hitler’s propaganda minister have to say, “If you repeat a lie often enough, people will come to believe it and you may come to believe it yourself.”
You remember Virgina Slims…I remember the Marlboro Man!
I quit smoking 10 years later, in 1978, when my first born, Katherine, was born. I wasn’t motivated to quit for myself…but I was to keep my baby safe.
Interesting thoughts, Kevin. I think most people recognize propaganda when they see it. This era was the dawning of women being brought to prominence in business. Companies were combing their human capital for women candidates they could promote to management positions.
The ad embraced ” Sell the sizzle, not the steak.” The message to women was— You’ve arrived. Women wanted that recognition. Not the cigarette.
All good points. It has been said “buy the company, not the stock” and I am of the opinion that is critical. I have always thought that valuation matters. This was proven yet again when the “Magnificent seven” stumbled and returned the S&P 500 slightly toward earth.
I really like dividends. When I started over in 2008 I began buying such stocks as well as growth. Today, dividends and similar returns provide about half of my annual RMD withdrawal. There is no doubt that they have contributed to my lifetime financial plan, and it is likely we will never spend our savings in our lifetimes.
The magnificent 7, a group of seven tech stocks has dominated the market but has been impacted by slowing earnings growth. Currently most are trading 20 -25% off their all time high prices.
Glad you found your comfort zone.
I agree. I’ve found a diversified portfolio of dividend stocks a fairly steady source of income for a portion of my portfolio. Yeah, any single stock can run into trouble and even a dividend aristocrat can get in trouble and cut their dividend. But as long as one stays diversified across a portfolio of high quality stocks I think (on average) their dividends fluctuate much less that the stock market. Nothings perfect, but I’ve come to realize dividend investing is a better fit to my personality so I’ve continued to slowly shift in that direction
There is satisfaction in what you say. Thanks for commenting OldTGuy.
Right on Marjorie. I only have two stocks, both utilities but they generate dividend income greater than my net SS benefit. These companies have been paying dividends for over 100 years.
One is PEG…who number 2?
Good old PEG, I’m betting, is one of your picks. One of my first stock purchases.
Good old PEG is the source of my income and directly or indirectly of my wealth.
RQ…what is your other one?
Dominion Resources
Great post! I’m a fan of dividend stocks, both dividend aristocrats and dividend kings (increased dividends for 50+ years), as well as index ETFs. We use the dividends to ‘fill up’ the emergency/contingency fund, otherwise we reinvest them.
While both bond and stock declines negatively impact investments, the income from bond’s interest payments is directly affected. However, with stocks, while price may fall, you still receive dividends—payments from companies profits.
Marjorie, I’m thinking of a client whose income was derived from their railroad pension and a few dozen dividend paying stocks. The combination provided them with a comfortable lifestyle, and due to the qualified dividends they had zero tax liability.
Our income is a pension, SS, dividends, and interest from various bond funds including mostly municipal bond funds. It’s that pension (annuity) that’s the foundation, 65% of total income.
Last year was my first year without a paycheck, so we enjoyed the zero tax on the qualified dividends.
Here is what I understand are the tax consequences for Qualified Dividends. Qualified dividends are taxed at the same rates as long-term capital gains, which are lower than ordinary income tax rates. The tax rates for 2024-2025 are:
These rates apply as long as the dividends meet IRS requirements, such as being paid by a U.S. corporation and held for a minimum period before the ex-dividend date
Nice bonus. Thanks for sharing, Cheryl
Good tax advantage. Thanks Dan
Marjorie, thanks for an interesting post. Clearly you were ahead of your time. I was a big fan of DRIPS (Dividend Reinvestment Plans) early in my investing journey. They made investing accessible to investors of modest means.
Always keenly interested in investing, I didn’t find my investing voice until later in life, and even then reluctant to bring my thoughts forward. Being a woman, I was always a little, wary about being judged by men of higher learning;
They say a mother knows her children and she encouraged me in my interest.
Thanks for your kind comments, Rick
Hate that you had to wait to feel confident enough to speak up. I, and I am sure others here at HD, are glad you have!
Thank you Kevin