What Difference Do Dividends Make?

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Financial Analysts Journal
November/December 2016 | Vol. 72 | No. 6 | 13 pages
Source: CFA Institute
C. Mitchell Conover, CFA, CIPM Gerald R. Jensen, CFA Marc W. Simpson, CFA

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We evaluate the investment benefits of dividend-paying stocks and identify three major findings. First, high-dividend payers have the least risk yet return over 1.5% more per year than do nondividend payers. Second, the benefit of targeting dividend payers is conditional on investment style. Surprisingly, the benefit is largest for growth and small-cap stocks, the stocks of companies usually thought to benefit the most from reinvesting their cash flows. Third, long–short managers exploiting the value premium should focus on non-dividend-paying stocks as non-dividend-paying small-cap value stocks return 1% more per month than do non-dividend-paying small-cap growth stocks.

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