The gains of the past couple of weeks come as welcome relief for those who've seen such big losses since late 2007. After seeing your net worth plummet, a respite -- no matter how brief -- gives you more confidence to look at your investments objectively.

I've used this vacation from gloom and doom to take a closer look at how various types of stocks have contributed to overall gains and losses. In my examination, I've found one almost universal truth: No matter how its stock performs, a company that pays dividends gives you a buffer against the ups and downs of the market.

Adjusting for dividends
You've heard dividend statistics before: 97% of all stock market returns from 1871 to 2003 came not from rising stock prices, but from those mundane quarterly payouts that so many stocks make. Despite a recent onslaught of dividend cuts from well-known blue-chip companies -- especially those in the financial industry -- the money you receive from dividend payments can make or break your portfolio.

Typically, you'll see articles focus on the amazing compounding power that reinvesting your dividends can give you. But there's another way that dividends can help -- even if you just take the money and run.

Dealing with losers
Unfortunately, many stocks have fallen on particularly hard times lately. Even outside the battered financial industry, many companies have had to make massive layoffs and implement other cost-cutting measures to try to survive through the recession. In some cases, those stocks look likely to saddle investors with nearly total losses on their investment.

But when you take a look at how much long-term investors have reaped from dividends on those stocks, the picture gets at least a little less dire. For instance, take a look at these struggling stocks, and how much they've paid out in dividends over the past 20 years:


Total Dividends 1989 to 2009

% of Current Stock Price

% of 1989 Stock Price

General Motors (NYSE:GM)




Ford (NYSE:F)




Citigroup (NYSE:C)




Bank of America (NYSE:BAC)




Alcoa (NYSE:AA)




Dow Chemical (NYSE:DOW)




Eastman Kodak (NYSE:EK)




Source: Yahoo Finance. Dividends are per-share amounts adjusted for splits. Historical prices are also split-adjusted.

As you can see, in nearly all of these cases, dividends have more than reimbursed long-term investors for their entire original investment -- if they've taken their dividends in cash. Moreover, dividend payouts have dwarfed the current value of the shares, especially in the midst of a bear market. Even though they've seen their share values dwindle to almost nothing, those investors who took cash dividends can't really say that their investment has been a complete loss.

Hedging your bets?
Given those figures, the question you have to ask is whether it always makes sense to reinvest your dividends. Obviously, dividend reinvestment is a powerful tool to augment your returns when you expect a stock to climb. But when share prices fall, you're clearly better off taking the money and reinvesting it elsewhere.

Despite these figures, I think most investors are better served by planning to reinvest their payouts. For those who are still accumulating wealth, your first objective should be growth. If you're investing in a company whose prospects are dim, you shouldn't take the middle step of holding onto your shares, but no longer reinvesting dividends. Instead, you should just sell your entire stake and find another company with better growth potential.

Of course, if you need dividend income for living expenses, that's another thing entirely. Take the cash, and be glad that over time, dividend-paying stocks can both defend your portfolio and ensure that you get some part of your investment back -- no matter how bad things get.

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Fool contributor Dan Caplinger has enjoyed the dividends he's received in recent years. He doesn't own shares of the companies mentioned in this article. Try any of our Foolish newsletter services free for 30 days. The Fool's disclosure policy always gets the job done.