Dividend Stocks Consistently
Outperform the Market

It's no secret - well-established companies that pay regular dividends outperform the overall market over both the short and long term. According to Ned Davis Research, dividend-paying stocks in the S&P 500 outperformed non-dividend-paying stocks 14.7% to 9.6% last year.

According to Standard & Poor's, 1,969 companies announced dividend increases in 2006. In addition, dividend payments continue to rise, posting a 7.1% gain over 2005 and a 16.1% gain compared to 2004. And the broader dividend picture looks promising, as well.

According to a separate study by S&P, 2006 was a record year for increases in both the number of companies raising their dividend amounts and total dollars paid out. And dividends are expected to continue to grow in 2007.

Many investors have been trying to find a safe, income-producing alternative to higher-risk investments to balance out their portfolios.

For example, money-market accounts and certificates of deposit have been popular in the past. But until recently, the interest earned has been diminishing. According to "official" government statistics, inflation rates are now over 2.5%. In reality it is much higher - investors are actually losing money. And stock and bond investors have not done much better.

Though these vehicles have been traditionally safe, they are currently quite risky. Many stocks are still well below their levels of a few years ago. Because of rising interest rates, returns on bonds are at record lows. And worse yet, CDs and other bank income are now taxed at about 35%!

Ouch.

While the tax on CDs is near the top level, the tax on dividends is at an all-time low - just 15%. Plus, with dividends you can get your cash relatively quickly - usually every quarter - and that diminishes the impact of inflation. What's more, most companies tend to raise their dividend amount each year at a rate that exceeds inflation, resulting in extra protection and supercharged income.

With the current interest rates, every month you have money in a CD or money-market account, you are losing money, while the return on bonds is almost negligible. Add this to the low risk associated with dividend stocks and you realize that they are the only sensible investment option right now.


Five Reasons to Own Dividend Stocks

We feel that there are five important reasons to buy dividend stocks today:

Reason #1: Dividends Add Significantly to Your Stock Returns.

The huge returns (and low dividends) of the late 1990s and early 2000s were an aberration. Over the long term, dividends have accounted for a full one-third of total returns from the stock market, based on the S&P 500.

In ten years, a 7% dividend will more than double your money.

Moreover, dividends are based on current stock prices - not what you originally paid for the stock. So if your shares double in value and you get a 7% dividend, you are effectively receiving a 14% return year after year.

Reason #2: You Get Much Higher Returns Than Any Bank Can Offer.

Even with recent interest-rate increases, most banks are still paying a paltry 2 or 3% interest on savings accounts and CDs. That's far less than you can get from the dividends of many stocks.

And in order to get even these paltry bank returns, you have to tie up your money for 12 to 24 months - or longer. If you want your funds back sooner, you have to pay substantial penalties for early withdrawal.