Long term value investing shop Tweedy Browne released a research paper called "The High Dividend Yield Return Advantage - An Examination of Empirical Data Associating Investment in High Dividend Yield Securities with Attractive Returns Over Long Measurement Periods." We hope it will provide you with added insight and confidence, as it did us, in pursuing a yield-oriented investment strategy.
WHY DIVIDENDS ARE IMPORTANT
• Over the long term, the return from dividends has been a significant contributor to the total returns produced by equity securities.
• There is an abundance of empirical evidence which suggests that portfolios consisting of higher dividend yielding securities produce returns that are attractive relative to loweryielding portfolios and to overall stock market returns over long measurement periods.
• Stocks with high and apparent sustainable dividend yields that are competitive with high quality bond yields may be more resistant to a decline in price than lower-yielding securities because the stock is in effect "yield supported". The reinvestment of dividends during stock market declines has also been shown to lessen the time necessary to recoup portfolio losses.
• The ability to pay cash dividends is a positive factor in assessing the underlying health of a company and the quality of its earnings. This is particularly pertinent in light of the complexity of corporate accounting and numerous recent examples of "earnings management", including occasionally fraudulent earnings manipulation.
• For years and years, U.S. tax policy disadvantaged dividends, applying high ordinary income tax rates to the dividends paid to investors. This changed with the enactment of the 2003 Jobs and Growth Tax Relief Reconciliation Act. For individuals, qualified dividends are now taxed at the same favorable rates as long-term capital gains (15%).
Read the complete research paper
WHY DIVIDENDS ARE IMPORTANT
• Over the long term, the return from dividends has been a significant contributor to the total returns produced by equity securities.
• There is an abundance of empirical evidence which suggests that portfolios consisting of higher dividend yielding securities produce returns that are attractive relative to loweryielding portfolios and to overall stock market returns over long measurement periods.
• Stocks with high and apparent sustainable dividend yields that are competitive with high quality bond yields may be more resistant to a decline in price than lower-yielding securities because the stock is in effect "yield supported". The reinvestment of dividends during stock market declines has also been shown to lessen the time necessary to recoup portfolio losses.
• The ability to pay cash dividends is a positive factor in assessing the underlying health of a company and the quality of its earnings. This is particularly pertinent in light of the complexity of corporate accounting and numerous recent examples of "earnings management", including occasionally fraudulent earnings manipulation.
• For years and years, U.S. tax policy disadvantaged dividends, applying high ordinary income tax rates to the dividends paid to investors. This changed with the enactment of the 2003 Jobs and Growth Tax Relief Reconciliation Act. For individuals, qualified dividends are now taxed at the same favorable rates as long-term capital gains (15%).
Read the complete research paper
