This chart really sums it all up – dividend cutters as well as non-dividend payers underperformed dividend growers by about 5% on average per annum from 1972- 2005.
At the end of the day I am in this game not only for the increasing dividend income but also for the capital gains that stock ownership might lead to.
Additional research from Prof Siegel about the performance from 1957 to 2007 of the original 500 stocks of the S&P 500 index suggests that there is a high chance that a well diversified portfolio ,which is representative of the major market sectors of its days, will perform close to what the overall market returns.
Due to the different information and research out there I will choose to sell or hold a stock that cuts its dividend on a case by case basis. Additional capital, however will not be allocated to dividend cutters, although dividends will be automatically reinvested.
Relevant Articles:
- When to sell your dividend stocks?
- Diversification and portfolio allocation
- Diversification Matters
- The case for dividend investing in retirement
