Dividends: Worth a Closer Look

Written by: Global Thought Leadership | July 07, 2017

Source: Bloomberg, as of 6/30/2017.  Past performance is no guarantee of future results. Indexes are unmanaged, and not available for direct investment. Index returns do not include fees or sales charges. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.

The Bottom Line

  • Historically, companies with a long history of growing dividends also have a long track record of producing attractive total returns.
  • Consider the S&P 500 Dividend Aristocrats Index—companies in the S&P 500 Index that have increased the dividend payout for at least 25 consecutive years—it notably outperformed the overall S&P 500 Index in the 3-, 5-, 10- and 15-year periods ended June 30, 2017.
  • It also accomplished that with lower standard deviation1—a sign that dividend paying equities might also provide a potential cushion from volatility, adding stability to an equity portfolio.
  • In addition, consistent dividend growth can be confirmation of a firm’s “quality” status, as it shows the company’s ability to consistently increase cash flow over time.
  • Many stocks still offer compelling dividend yields relative to Treasuries today. As of June 30, 2017, the S&P 500 dividend yield, at 1.97%, was higher than the 2-year Treasury note (1.38%) and the 5-year Treasury note (1.89).2
  • But it’s important to remember that a high dividend yield isn’t the whole story when comes to selecting dividend stocks—there could be more attractive valuations in stocks that have lower absolute dividend yields, but faster dividend growth rates.
  • With income still in high demand—and not easy to find in the current low rate environment—equity income opportunities are definitely worth a closer look.  


1 Source: Bloomberg. As of 6/30/17, the 3-year standard deviation of the S&P 500 Dividend Aristocrats Index was 9.69% compared with 10.31% for the S&P 500; the 5-year was 9.49% compared with 9.55%; the 10-year was 14.17% compared with 15.42% and the 15-year was 12.76% compared with 14.09%.

2 Source: Bloomberg.


IMPORTANT INFORMATION: All investments involve risk, including loss of principal. Past performance is no guarantee of future results. An investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.

Equity securities are subject to price fluctuation and possible loss of principal. Fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed income securities falls. International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.

The opinions and views expressed herein are not intended to be relied upon as a prediction or forecast of actual future events or performance, guarantee of future results, recommendations or advice.  Statements made in this material are not intended as buy or sell recommendations of any securities. Forward-looking statements are subject to uncertainties that could cause actual developments and results to differ materially from the expectations expressed. This information has been prepared from sources believed reliable but the accuracy and completeness of the information cannot be guaranteed. Information and opinions expressed by either Legg Mason or its affiliates are current as at the date indicated, are subject to change without notice, and do not  take into account the particular investment objectives, financial situation or needs of individual investors.

Outperformance does not imply positive results.

Yields and dividends represent past performance and there is no guarantee they will continue to be paid.

U.S. Treasuries are direct debt obligations issued and backed by the "full faith and credit" of the U.S. government. The U.S. government guarantees the principal and interest payments on U.S. Treasuries when the securities are held to maturity. Unlike U.S. Treasury securities, debt securities issued by the federal agencies and instrumentalities and related investments may or may not be backed by the full faith and credit of the U.S. government. Even when the U.S. government guarantees principal and interest payments on securities, this guarantee does not apply to losses resulting from declines in the market value of these securities.