NEW YORK (TheStreet) -- In a recent article, the headline queried, "Is Dividend Investing Doomed?" The conclusion was, "not the death of dividends" approaching, but rather, "that we could be witnessing the end of low-risk dividend investing." Nothing is further from what the history of dividend-paying stocks has been and nothing is further from what the future should bring from high yield, low-risk dividend-paying stocks such as Exxon Mobil (XOM), Wal-Mart (WMT), Coca-Cola (KO), Wells Fargo (WFC), and many, many more.
First, a little bit about the history of the role of the dividend in the total return of an equity.
Jack Bogle, legendary investor who founded the Vanguard mutual fund family, in his book Enough, says dividends have historically provided about 40% of the total return for stocks. That is why buying a stock that does not pay a dividend is called "dead money." That is also why of Warren Buffett's 10 largest positions, eight pay dividends higher than the average of about 1.9% for a member of the Standard & Poor's 500 Index.
The trends of the future also favor dividend-paying stocks.Ralph Wanger, manager of the Acorn Fund which has topped S&P by more than 25% since its founding in 1970, advised investors that, "If you're looking for a home run -- a great investment for five years or 10 years or more -- then the only way to beat this enormous fog that covers the future is to identify a long-term trend that will give a particular business some sort of edge." The following three trends result in dividend-paying stocks having an "edge." Baby boomers are now starting to retire: About 10,000 are turning 65 every day. To pay for living expenses after quitting work, income is needed. Dividend-paying stocks, by far, are the best sources of income for individual investors. Wal-Mart, Coca-Cola, and Exxon Mobile are "Dividend Aristocrats," which means each has raised its dividend at least 25 consecutive years. That income record is far superior to a bond. It is also a significant factor for Warren Buffett being a major shareholder of the three aforementioned stocks. Buffett's largest position is in Wells Fargo, with a dividend yield over 2.70%. In the future, more will have to finance their own retirement.
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