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Linda C. Becker
Senior Vice President
Wintrust Investments

With increased market volatility and the current low interest rate environment, dividend-paying stocks are back in the spotlight. These securities have long been valued for their defensive characteristics during down markets due to the steady income they generate and their capital appreciation potential. Investors may benefit by the predictability of dividends to help stabilize and enhance their equity returns with the prospects of slower growth opportunities and more frequent and more extreme market fluctuations.

Over the years, dividend-paying stocks have generated consistent, positive return streams, regardless of general market movements. Further, investors who choose to reinvest their dividends can enjoy the long-term compounding benefits associated with owning more of the company’s stock and therefore receiving greater dividend payments down the road.

Dividend-paying stocks offer key benefits that can make them an effective component of a successful, long-term investment strategy:

  • Corporate Financial Health. A company’s ability to pay steady and increasing dividends over time provides tangible evidence of its financial well-being. Only companies with strong cash flow can pay dividends, and cash flow is often a sign of a stable company with low debt and 
a competitive advantage.
  • Source of Total Return. Dividend-paying securities offer the potential for both capital growth and income. These stocks pay a cash return regardless of whether their share prices go up or down.
  • Insulation from Interest Rate Movements. Aside from how the Federal Reserve alters monetary policy, dividend-paying stocks have historically outpaced their non-paying counterparts.
  • Downside Protection. Dividend-paying stocks have also provided consistently stronger returns compared to non-dividend paying stocks across full market cycles.

Investors looking to incorporate dividend-paying stocks into their portfolios should look at a company’s dividend payment history. Corporations with strong track records of steadily increasing dividends over the past 20, 30, or even 50 years, should be top candidates. As always, you should consult with your Financial Advisor before making any investment.

For more information, contact a Financial Advisor today.