When stocks have floundered directionlessly for a stretch, it usually doesn't take long for investors to start pondering loading up on high-dividend payers. Then, the theory goes, they will at least earn something. We can see the theoretical allure. If stock prices are bouncing sideways, a large cash payout provides a near-term reward for sitting through the volatility. Yet in our view, this line of logic is too short-term and could lead investors into mistimed moves.
One curiosity about the dividends as solution to flat markets argument is that it commits a key error twice, in two different ways. Namely, it doesn't consider stocks' total return. Rather, it sets total return's two components—price movement and dividends—against each other. To accurately consider whether high dividend paying stocks can offset flat returns, you must also look at high dividend payers' price movements.
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