The Greatest Growth Isn't Flashy

It pays to learn from the market's best investors.

One to watch is Phil Davidson, who, as manager of the American Century Equity Income (TWEIX) fund, has outpaced the S&P 500 by four percentage points per year over the past decade.

But those exciting returns are the product of a decidedly boring strategy. Davidson, you see, is a dividend investor. American Century yielded 2.14% over the past 12 months, versus just 1.64% for the average index tracker.

Top holdings in his fund include:

Company

Current Yield

General Electric (NYSE: GE  )

3.1%

ExxonMobil (NYSE: XOM  )

1.7%

AT&T (NYSE: T  )

3.9%

Bank of America (NYSE: BAC  )

4.3%

H.J. Heinz (NYSE: HNZ  )

3.0%

Southern (NYSE: SO  )

4.3%

SunTrust Banks (NYSE: STI  )

3.0%

Notably, each of these companies has a yield greater than the market average.

Don't look so shocked by Davidson's returns. Dividends have accounted for more than 40% of the S&P 500's return since 1926. And Wharton professor Jeremy Siegel found that, from 1871 to 2003, just 3% of the market's total return came from capital gains.

What of the other 97%? Thank you, dividends.

Be a Fool for dividends
Moreover, recent research showed that growth huggers like me were wrong in assuming that a company had to plow 100% of its cash back into the business to maximize earnings growth. Instead, the highest dividend payers achieved the highest 10-year earnings growth.

Focusing on dividend-paying stocks doesn't necessarily mean you're giving up on growth. Davidson's success, and Siegel's research, show that the greatest growth isn't flashy.

Want help finding some top dividend payers? Our Motley Fool Income Investor service, led by James Early, is beating the market by more than eight percentage point and yields more than 4% on average. Click here for 30 days of unfettered access to Income Investor. You'll have immediate access to all our picks, including our best buys right now, and there's no obligation to subscribe.

Fool contributor Tim Beyers didn't own shares in any of the stocks or funds mentioned in this article at the time of publication. Bank of America, H.J. Heinz, and Southern are Income Investor picks. The Motley Fool's disclosure policy is like money in the bank.


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