Dividends need to represent a sound capital allocation policy

July 18, 2019

Epoch’s Kera Van Valen responds to an article published by the Financial Times:

Your article “Highest yielding shares underperformed FTSE 100 over five years” (Chart that Tells a Story, July 13) makes an interesting point that choosing shares on the basis of a high dividend yield may mean underperforming the wider benchmark, but not all dividends are the same. Dividends have a long history of being a powerful way to return cash to shareholders and research on a long-term basis shows it is always a positive contributor to returns.

Ned Davis Research found that over a 25-year period to June 2019, companies that paid stable dividends had annualised returns of 7.5 percent, while returns for companies with growing dividends were 10.4 percent. This compares with returns of 6.9 percent for non-dividend paying stocks and 6.5 percent for companies that cut their dividends. Not only did the companies with stable and growing dividends outperform those with inconsistent dividend policies, they did so with less volatility.

To read the full response, click here.

 

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