Dividend-paying stocks may not give you a quick buck, but they offer one of the best protections from a bear market. Here’s why, columnist MktwHulbert writes.
CHAPEL HILL, N.C. – One of the best bear-market-protection strategies is hidden in plain sight: Dividend-paying stocks.
Perhaps the best recent example of this comes from Exxon Mobil, XOM, -2.18% whose earnings took a big hit during the first months of the pandemic. From earnings per share of $4.88 in 2018, the company’s EPS dropped to minus $5.25 in 2020. Yet Exxon’s cash dividend in 2020 was 6.1% higher than in 2018. And it’s 1.2% higher today than it was in 2020.
Don’t think that these impressive inflation-adjusted returns trace to earlier decades when share buybacks were less of a factor. Since 1990, when share repurchases have been a major substitute for dividends among companies wanting to return cash to shareholders, DPS 12-month growth rates have been 3.2 percentage points higher than inflation.
Assuming that the growth of S&P 500 Aristocrats’ DPS outpaces inflation over the next decade by the same margin as historically, and assuming that the CPI increases over the next decade at what the inflation-expectations model from the Cleveland Federal Reserve is currently projecting, then this ETF’s total dividend payments over the next 10 years will almost precisely match the 10-year Treasury’s total interest payments.
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