John D. Rockefeller – one of the wealthiest men who ever lived – once said that the only thing that gave him pleasure was to see his dividends coming in.
That’s a strong statement. But if Rockefeller meant it, he must have truly been the happiest man in the world. Rockefeller was the founder and majority of Standard Oil, which was the predecessor of both ExxonMobil and Chevron. And he insisted that 2/3 of the annual profits of the largest energy monopoly in history be paid out in dividends. That’s a lot of income rolling in every quarter.
For most investors, a dividend is simply a check that arrives in the mail every quarter (or more likely gets posted to their brokerage account). And to be sure, this is a nice perk. Getting a regular stream of income allows you to realize regular profits along the way without having to sell your stock. You can think of it as enjoying the milk from a cow without having to slaughter it for meat. Sure, steak might be tasty. But once it’s gone, it’s gone, whereas the milk can last a lifetime.
But dividends are about more than just income. They’re about being a better kind of company. Earnings can be manipulated. Even sales can be manipulated. But dividends have to be paid in actual cash. There’s no amount of dodgy accounting that can fake cold, hard cash.
Furthermore, knowing that cash has to be on hand to pay dividends forces management to be more disciplined. They are less likely to burn shareholder money on expensive vanity projects when they know they might need that cash to fund the dividend next quarter. They’re also less likely to dilute their shareholders with stock-based employee compensation or secondary stock offerings, as they’d have to pay dividends on any new shares created.
Some might argue that initiating a dividend is an admission by management that the company’s best growth days are behind it. But as Sonia Joao, President of Houston-based RIA Robertson Wealth Management explains, “Paying a dividend doesn’t suggest slower growth ahead. If anything, it’s the exact opposite. Precisely because the company expects durable growth, they’re more willing to part with their cash.”
This isn’t just academic. Dividend-paying stocks have been proven to outperform their non-paying peers over time. Research Ned Davis Research showed that the equally weighted S&P 500 index enjoyed a compound annual growth rate of 7.70% over the 1972 to 2017 period. But breaking the index down gave very different results. The dividend payers collectively enjoyed returns of 9.25% per year, while the non-payers lagged with returns of just 2.61%.
Even better, stocks that initiated or grew their dividends fared best of all, enjoying compound annual returns of 10.07% per year.
So, not only do dividend stocks put a little change in your pocket every quarter. They also massively improve the performance of your portfolio.
Today, we’re going to take a look at 20 stocks that have initiated a dividend in recent years. As these are all new dividend payers, not all are exceptionally high yielders. But all have made a commitment to start rewarding their patient shareholders with a regular cash payout.