Dividend Focus

There are two main ways to make money on equities: share-price growth, and dividends. At Peachtree Investment Partners, we look for companies with strong fundamentals that we believe are likely to fuel the growth of the value of the stock. But we also believe firmly in the importance of dividends.

We believe that dividends provide some extremely important benefits to investors:

  • Historically, dividends have added significantly to portfolio yields. In fact, since 1929, almost half the stock market’s total returns have come via dividends. Reinvested dividends can make a huge difference in the performance of your portfolio over time.

  • Dividends help to smooth out market volatility. Returns can come from a change in the value of your stock or from dividends. If your stock does not pay dividends, and therefore all your return comes from changes in the value of the stock, you are very much at the mercy of a volatile market. On the other hand, if a significant part of your return comes from dividends, you are less reliant on day-to-day market moves. Of course, pure growth stocks benefit more fully when the market is way up. But they also take the hit of a down market. Dividends can help even out the ups and downs.

  • We believe dividends encourage – and are evidence of – careful stewardship on the part of company management. Many companies that pay dividends have done so for years; the ability to continue to pay dividends and even to increase those dividends is a matter of pride for the company. And it signals to the investment community that the company is well-managed and well-capitalized. If for some reason a company cut dividends or stopped paying them altogether, it would be seen by the market as a very bad sign and probably would exert downward pressure on the stock price.

Not every stock we recommend for a portfolio pays dividends. However, stocks that do not pay dividends need to show the potential for truly exceptional growth.

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