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Should You Consider Dividend-Paying Stocks?

With bond yields hovering near historical lows, stocks that offer quarterly payouts may have renewed allure for income-seeking investors.

Nearly half (48.8%) of the stocks in the S&P 500® Index offered a dividend yield of at least 1.90%,1 as of December 16, 2019. Meanwhile, 10-year U.S. Treasuries offered a yield of 1.87% on that same day—though of course payouts from Treasuries are guaranteed while those from dividend-paying stocks can be reduced or eliminated at any time and without notice.

Dividend-paying stocks can be especially important to retirees. “As health care costs continue to rise and bonds offer nominal yields, retirees need a way to help offset inflation and rising expenses,” says Bill McMahon, a senior vice president at Charles Schwab Investment Advisory. “Dividend-paying stocks can help.”

That said, dividend-paying stocks aren’t only about the dividends. “In addition to helping boost portfolio income, companies that increase their dividends send a positive signal about the business’s health,” Bill says. Indeed, over the past four decades, equities with strong and rising dividends have significantly outperformed their low- and non-dividend-paying counterparts in terms of total returns, which include price appreciation (see “The dividend dividend,” below).

The dividend dividend

The stocks of companies that grew their dividends over time have historically outperformed all other stocks.

Source: Compustat, Ned Davis Research, S&P Capital IQ, and S&P Dow Jones Indices. ©2020 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All rights reserved. See additional explanatory notes and disclosures at For data vendor disclaimers, refer to Past performance is no guarantee of future results.

By the same token, companies facing economic hardship may slash their dividends to help preserve capital or meet other obligations. And when a company cuts its dividends, its stock price often declines, potentially compounding the impact on your portfolio.

Investing in dividend-paying stocks via an exchange-traded fund or a mutual fund can help manage this risk. “Fund managers have the time and expertise to research businesses that seem poised not only to sustain their current payouts but also to grow their dividends in the future,” Bill says.

1Schwab Center for Financial Research.

What You Can Do Next

  • Schwab clients can research dividend-paying funds by logging in to the mutual fund screener or ETF screener, selecting Basic Criteria, and then selecting their desired criteria under Fund Category and Distribution Yield.

  • Learn about ThomasPartners® Strategies’ dividend-focused approach, which aims to provide monthly income, income growth, and competitive total returns over time.

Important Disclosures:

Investing involves risk, including loss of principal.

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

Dividend-focused funds may underperform funds that do not limit their investment to dividend-paying stocks. Stocks held by the fund may reduce or stop paying dividends, affecting the fund’s ability to generate income.

Portfolio management for the ThomasPartners Strategies is provided by ThomasPartners Investment Management (“ThomasPartners”), a division of Charles Schwab Investment Advisory, Inc. (“CSIA”). CSIA is a registered investment adviser and an affiliate of Charles Schwab & Co., Inc. (“Schwab”). Both CSIA and Schwab are separate entities and subsidiaries of The Charles Schwab Corporation.

Please refer to the ThomasPartners Strategies Disclosure Brochure for additional information.

Indexes are unmanaged, do not incur management fees, costs and expenses, and cannot be invested in directly.


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