Considering the recent financial collapse, the flight to safety in cash and bonds, and the eventual return to low-feeding stocks like AIG and Citigroup, you might think that dividend investing is dead. In 2009, investors lost about $58 billion in dividend payments. More than 800 companies cut their dividends, up 630% from just two years prior! Even worse, the number of companies raising dividends was the lowest since the S&P began collecting information in 1955.
In the emergency room
As investors, we've experienced true volatility in the last few years -- cataclysmic bankruptcies, the near-crumbling of money market funds, and the unprecedented bailout of dozens of public companies. Unfortunately, in the process, hundreds of blue chips began slashing or suspending their dividend payments as they tried to hoard capital. Traditional dividend players such as Pfizer
Seemingly non-volatile corners of the market, like Fidelity's Dividend Growth Fund, which holds such stalwarts as JPMorgan Chase
Not that the rest of the market has done much better, but still, all things considered, the future for dividend investors looks a bit bleak.
A ray of sunshine
Just when I started to truly get down on dividend payers, I read a recent transcript of an interview with renowned professor Dr. Jeremy Siegel. After acknowledging the turbulent times that the financial sector has experienced, Siegel comes right out and says what millions of value investors are fervently waiting to hear: "Dividend investing isn't dead ... I'm looking for a bright future for dividend-paying stocks over the next year or two."
Could he be any clearer? (My heart stopped beating so quickly: The majority of my portfolio contains dividend-paying stocks!) Although I don't always take Siegel's comments at face value, I do know that he usually has some great historical data to back up his remarks.
According to the professor, 97% of all returns over the last 132 years have come from dividends on the original investment. That is an astounding percentage of gains to be attributed to dividend reinvestment. And over that same time period, we've experienced the panic of 1907, the Great Depression, the recession of the late 1980s, and the gigantic tech bust of the early 2000s.
Although we can't say that the successes of the past will always occur in the future, what we can say is this: Panics, recessions, and market crashes are nothing new, and dividend-paying companies, regardless of the market, have always remained an integral part of investors' returns.
In the recovery room
Now that Dr. Siegel has calmed our nerves, let's look not just at the past, but at the present. In 2008, although some 400 companies cut their dividends, more than 1,700 companies increased their payouts. Which of these dividend-increasing companies are rock solid? Well, that's a question that our analysts at Motley Fool Income Investor try to answer. They look for steadfast companies that pay consistent dividends, have potential for capital appreciation, and generate enough earnings to keep from endangering their payouts. And although the Income Investor team has had its fair share of difficulties in this challenging market, it's done quite well since inception in 2003, beating the S&P 500 by seven percentage points.
Still don't believe that dividend-paying stocks with room for growth are out there? I'll give you one example of an excellent company that has increased its payout from 2008 to 2009. Occidental Petroleum, an oil and gas exploration and production company, has been paying dividends since 1975 and has been increasing them for the last six years. Over a tumultuous 10-year time period, it has experienced annualized gains of 25.1% versus the -2.4% of the S&P 500. Most importantly, the financial crisis didn't hold Occidental down: It went on increasing dividends.
If I still haven't convinced you that dividend investing isn't dead, listen to Siegel when he says, "Research is very clear that ... high dividend investing is the best long-run investing style that you can adhere to." Again, the professor's words here are crystal clear.
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Fool contributor Jordan DiPietro owns no shares of the companies mentioned above. Pfizer and Wal-Mart Stores are Motley Fool Inside Value recommendations. The Fool owns shares of Legg Mason. The Fool has a disclosure policy that reinvests annually.