One case in point was in 2007, when 29% of the S&P 500 yielded dividend income from banks and financial companies. Howard Silverblatt, senior index analyst at Standard & Poor’s, recalls that the scenario did not end well, as banks paying a steady dividend suddenly went bust and investors were punished. [Dividend ETFs in Focus as Companies Raise Payouts]
Also consider that from the peak of the market in 2007 until the end of the first quarter 2009, the Dow Jones U.S. Select Dividend index lost 53.8%, versus a 50.2% loss for the S&P 500, according to Fran Kinniry, an investment strategist at Vanguard Group.
As a rule, investors should not consider a sector or asset class just because everyone else is investing in it. Remember that dividend shares are not bonds and do not take the place of them. There is no guarantee that you will collect “interest” or gains, nor that you will get your money back at maturity.
Tisha Guerrero contributed to this article.