Investment Corner: Dividend Investing
As a financial advisor, I am sometimes asked to give my opinion on dividend-paying stocks. Many retired investors hope that a dividend stock portfolio will provide a steady stream of income while growing the portfolio. My goal for most of my retired clients is the same—income with portfolio growth—and I use a strategy that follows over 100 years of research and evidence to pursue that goal.
First, some facts. Dividends are payments that companies make to their shareholders, typically from the company’s earnings. Many companies pay dividends. For companies that do, their dividend payments are normally calculated on a per-share basis, so a shareholder with 100 shares of the stock would receive a dividend 100 times as large as a shareholder with 1 share of the same stock.
Dividends are often seen as a marker of how a company is doing; companies that consistently increase their dividends over many years are typically thought to be financially healthy, while companies that decrease their dividends are often assumed to be under financial stress. Historically, companies with consistent and growing dividends have tended to produce strong long-term returns.
Some companies don’t pay a dividend, instead either reinvesting their profits into the business or using them to buy back company shares. To give you an idea of how many companies pay a dividend, S&P Global Market Intelligence reported that in early 2026, 411 companies (over 80%) in the S&P 500 pay dividends. The Russell 2000 small-cap index, on the other hand, has just over 40% of the companies paying a dividend during the same timeframe.
Now, to my own thoughts on dividend-paying stocks. If you are investing broadly and diversifying in the stock market, you will have quite a lot of exposure to dividend stocks without trying. If you want to focus on owning a bunch of dividend-paying stocks in addition to that broadly invested portfolio, you are concentrating your portfolio around that one particular characteristic. Investors who choose to invest solely in dividend-paying stocks will find their portfolios to be even more concentrated around that same characteristic.
There is evidence that certain types of dividend stocks have outperformed the S&P 500 in recent years. The “S&P 500 Dividend Aristocrats Index”, which consists of companies in the S&P 500 that have raised their dividends for at least 25 consecutive years, has outperformed the S&P 500 since 1990, with a total annualized return of 11.6% vs 10.2%. And, it has done this with lower volatility than the S&P 500 over that same time period. The important thing to remember is that dividends are one component of an investor’s total return, not an additional return on top of it.
Nevertheless, we should be careful about getting too clever for our own good. Over the past 100 years, value stocks and small-cap stocks have also strong historical premiums. Rather than trying to pick the right individual stocks and concentrating your portfolio, I suggest you take the
opportunity to diversify into different company sizes, styles, and countries. You will end up with quite a few dividend stocks by doing this.
There’s one other part of this discussion worth noting: the tax implications. Particularly in a taxable investment account, dividends will be paid when the company chooses, and in the amount that the company chooses. You will then owe taxes in the year the dividends are received, whether you needed the money or not! Those dividends are generally either taxed at ordinary income tax rates or at long-term capital gains tax rates, depending on their structure.
Instead, you can design a strong, diversified portfolio and set up withdrawals as needed. Unlike the dividend stock owner, you will choose how much income to take and when to take it. That puts you more in control of the amount of taxable income you create from your portfolio.
Whether you pursue a dividend strategy or choose not to, invest smartly and invest well!
Larry Sidney is a Zephyr Cove-based Investment Advisor Representative. Information is found at https://palisadeinvestments.com/ or by calling 775-299-4600 x702. This is not a solicitation to buy or sell securities. Clients may hold positions mentioned in this article. Past Performance does not guarantee future results. Consult your financial advisor before purchasing any security.
