Let’s Talk About Total Return

I was a retail stockbroker at Merrill Lynch in the 1980s, and I’ll never forget one of the conversations I had with one of my wealthiest clients.

He said, “There’s nothing I like better than to open my mailbox to find a dividend check.”

Back in those days, dividends were still being sent by mail. Once a quarter, dividend-paying companies sent their shareholders an actual check.

Today, dividends are automatically credited to your brokerage account. So, you don’t get the pleasure of receiving dividend checks in your mailbox anymore, like my wealthy client.

Maybe it’s the absence of a physical check — a tangible experience to tie it all together. But I just don’t hear many investors talking about dividends like they used to.

That’s a shame because dividends are a very important part of the stock market’s total return.

Despite the coronavirus pandemic, American companies paid out a record amount in dividends last year.

The companies that make up the S&P 500 Index paid out a total of $480 billion last year, the ninth-straight year of record dividend payments.

Dividend payouts are more common than you may think; 385 out of the S&P 500 currently pay a dividend, and five of them just announced dividend increases:

•  Apple, Inc. (Nasdaq: AAPL) raised its quarterly dividend to 22 cents per share, a 7% increase.

•  Chubb Ltd. (NYSE: CB), the insurance giant, increased its dividend from 78 cents to 80 cents, a 3% increase.

•  The Clorox Company (NYSE: CLX) raised its dividend by a 5% increase, from $1.11 to $1.16 per share.

•  Lowe’s Companies, Inc. (NYSE: LOW) upped its dividend by 33%, from 60 cents to 80 cents per share.

•  Union Pacific Corp. (NYSE: UNP) goosed its dividend by 10%, from 97 cents to $1.07 per share.

In these days of huge gains in r/WallStreetBets stocks like AMC Entertainment Holdings, Inc. (NYSE: AMC) and cryptocurrency moonshots like Dogecoin (DOGE), you get excited about a 1%, 2% or 3% dividend.

That’s shortsighted, though. Last year, the S&P 500 was up 15.7%. Including dividends, the total return was 17.8%.

Higher returns aren’t the only benefit of dividend-paying stocks. They’ll also deliver significant downside protection during bear markets.

In 2008, for example, the S&P 500 dropped by 37%. At the same time, the S&P 500 Dividend Aristocrats — an index of large companies that have raised their dividends every year for the past 25 years — lost only 22%.

In fact, dividend-paying stocks have outperformed the overall stock market in both good times and bad, a hard-to-beat combination of all-weather performance.

That’s especially true today, with the stock market at dizzying valuations and runaway government spending and borrowing threatening future stability.

Indeed, lots of my smart money manager friends expect the stock market to run into an overvalued wall and sink lower eventually.

If you’re looking for ways to reduce your risk and portfolio volatility, I recommend you take a long, serious look at dividend-paying stocks.

One of the best in the business at this “safe money” approach to investing is my colleague, Mike Larson.

Best,

Tony Sagami

About the Income & Dividend Analyst

In an era of high-risk exuberance, Mike Larson stands out as a leader in conservative investment strategies that outperform the market overall. Using the safety-oriented Weiss Ratings as a guide, he has a proven history of guiding investors to stocks and ETFs that provide asset protection, consistent dividends and excellent growth.

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