Dividend Redux

Abstract

Has dividend equity investing as a style been rendered irrelevant by the recent rise of equities without a payout, or should it remain an important building block in modern portfolios? This paper is an attempt to explore this question, supported by nearly a century of data. Reviewing the history of returns, I find strong evidence demonstrating long-term risk-adjusted return advantages for dividend equities relative to non-payers and the market despite a recent flourish from non-payers. I also find that despite the higher realized average returns and Sharpe ratios for a representative mid-yield dividend category, higher volatility and the relative propensity and size of right-tail outcomes for the market and non-dividend equities, in particular, make periods of relative underperformance not only possible but reasonably probable.