Investors who are following the herd into dividend-paying stocks or exchange traded funds may not reap the same rewards as those who led the way. Before deciding if dividend investments are still a lucrative way to go, read on.
“Since 1927, high-dividend-paying stocks have returned 11% per year, beating the 8% return from non-payers and resulting in an ending wealth that is 8 times larger. Better yet, they accomplished this feat while incurring less volatility. But dividend-paying stocks outperform only over the long haul, so why might 2012 be a particularly good year for dividend-paying stocks?” wrote Michael Rawson for Morningstar, in a recent article. [This Dividend ETF Can Double as a Core Holding]
Investors are seeking dividend stocks and ETFs because they are looking for an income stream and the current low-interest rate environment shows no sign of changing. Furthermore, some investors may be performance-chasing, as the 100 highest yielding stocks in the S&P 500 outperformed the overall market by about 8% in 2011, reports Jason Zweig on WSJ.com. [Is Dividend ETF Investing Risky Business?]
Overall, dividend-paying shares are less risky and can be more rewarding than the broad equity market, however, the short term risk of this sector of the market can make investors vulnerable to being in the wrong place at the wrong time, he writes.