Historically, higher dividend-paying stocks have shown relatively higher returns (as can be seen in the chart below). For many reasons, we believe that a high dividend payout disciplines management. If a firm has too much free cash flow at its disposal, managers might be tempted to undertake value-destroying projects or spend on excessive salaries or perks.
Dividends are also assumed to be one of the defensive factors that perform well during times of macroeconomic instability.
Performance of portfolios based on their dividends
Past performance is not a reliable indicator of future performance. This also holds for historical market data
Source: VanEck analysis using data from Kenneth French (https://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html). Portfolios are split based on dividend yields and include all NYSE, AMEX and NASDAQ Stocks. Monthly returns are used to calculate annualized data for the 50 years ending November 2022. A geometrical average is used to calculate the performance.