Financial Planning Fridays #51: A More Balanced Look at Dividend Stocks

Dividend stocks have been a popular way to invest for a long time. Investors have enjoyed receiving the steady, and seemingly certain, income generated by these types of stocks, especially during retirement.

However, at Presilium we prefer to have our clients think about generating their income from the total return of their portfolio, rather than looking at the dividend yield. Just because a stock has a high dividend yield, it does not mean that it is a good investment.

According to Bespoke research, there are 101 stocks in the S&P 500 that do not pay any dividend. They are up an average of 20.7% this year as of August 7, 2023.

On the other hand, the 100 stocks in the S&P 500 with the highest dividend yield are down 3.2% YTD.

However, that is only for this year which is a relatively small length of time. Let’s look at the performance over longer lengths of time instead.

This chart shows $1 Million invested in the S&P 500 vs. the Vanguard High Dividend Yield ETF over a variety of time periods. The S&P 500 has outperformed over every single one of them. In fact, over the past 15 years a one million investment in the S&P 500 has outperformed the high dividend alternative by more than $1 Million.

When building your portfolio, we would recommend thinking about your total return first rather than the annual income it generates.

Be on the lookout for our next Financial Planning Fridays episode. Subscribe to our Youtube Channel so you never miss an episode. Or contact us directly; schedule your 15-minute call with us today.