Back in the 90’s, dividends and traditional value companies fell out of favor while growth companies were all the rage during the dot-com boom. But is there value in dividend paying stocks?
The obvious answer is yes, because dividend-paying stocks pay out part of their earnings to shareholders. However, the real answer goes far beyond that.
Several years ago, a study was done by Fuller and Goldstein that looked at company dividend policies; and how those policies affected stock prices over time. It turns out that on average, dividend paying stocks outperformed non-dividend paying stocks by an average of 0.37% per month. And the effect was most noticeable during down markets, when dividend paying stocks outperformed by an average of 0.74% per month.
Another study was done that looked at how stock price appreciation was affected by a raise or cut in dividends. In situations where a company had a long history of raising dividends, it tended to outperform; and in situations where a company cut its dividend, it tended to under-perform the market
So, dividends do matter. Not only is it an opportunity for investors to directly share in a company’s profits, but it can also have a positive influence on a stock’s price.
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