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How do you like those dividend payers now?
Dividend-paying stocks have been one of the most popular categories with investors this year. While U.S. diversified equity funds experienced withdrawals of $17.9 billion and $13.9 billion in September and October, according to Lipper, equity-income funds attracted $500 million and $2.1 billion, respectively, during those same months.
Meanwhile, the sectors with the highest dividend yields"”utilities, consumer staples and telecom"”have gained 14.5%, 10.4% and 1.9%, respectively, in 2011, well above the Standard & Poor’s 500's 0.9% return.
We've even touted them ourselves, here, here and here.
Last week, however, showed the downside to a portfolio laden with dividend-paying stocks. The S&P 500 gained 7.4%, the most since the week ended March 19, 2009. The sectors with the highest dividend yields, however, lagged precipitously. Telecom stocks gained 5.9%, staples gained 4.6%, and utilities gained just 4.0%.
That's to be expected, of course. Dividend stocks tend to be much less volatile on the upside, as well as on the downside. Yet the comparison to the S&P 500 during the past four weeks hasn't been sterling either. During that period, one in which the S&P 500 lost 0.5%, utilities lost 0.6% and telecom stocks were unchanged. Only staples outperformed meaningfully, gaining 2.4%.
And if the market finds itself on a sustained rally, watch out. During the 1990s, for instance, investors in the S&P 500 would have more than quintupled their money, while "only" quadrupling it in staples and telecom. Utilities gained just 140%.
The lesson: Investing in dividends is a long-term commitment. In exchange for less volatility and more-stable returns, investors should be prepared for periods where dividend payers drag down, not boost, an equity portfolio.
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I have to agree that this is, indeed, a rather silly piece that appears to be written by a very young know-little oriented toward trading rather than investing. The WSJ has taken a sad turn in this direction since it’s changed ownership, one strong reason why I’ll not be renewing my subscription.
Thus the reason to diversify your portfolio among various sectors. A better strategy for many attracted to the dividend-paying stocks or funds would be to also add a group of core equity stocks or a broader index fund to their investment mix….
File this article under “stupid”
Clearly an advertiser pulled out of the print edition, leaving a blank space that had to be filled hastily.
This is a lame article. Shame on WSJ. They shouldn’t force content just for the heck of it.
Reading this, it’s apparent why the 685,000 financial advisors we had in this country prior to the 2008 meltdown, didn’t do much to protect the average investor.
Yes, Wall Street is full of geniuses at giving bad advice, and getting paid handsomely for it. So too is the Wall Street Journal. And I paid for this subscription????
Total Return covers the latest personal-finance and investing news and trends, helping readers make sensible money decisions in a complex financial world. Send your comments, feedback and questions to totalreturn@wsj.com.
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