Diversifying with Dividends: Are Investors Ignoring a Free Lunch?

“One of our clients is a married couple with about $5 million in liquid assets. They are both 80 years old. 90% of their money is in equities. Most in US large cap index funds and then they own large single positions in Nvidia, Eli Lilly, and Tesla. The husband wants to be 100% in these things. The wife wants it all in CDs. Trying to walk them back from so much risk would seem easy but because the husband has been ‘right’ recently, it has been difficult.” -Financial Advisor & KCR Subscriber

We do not envy the Financial Advisors who face such challenges. However, the feedback we received after our last piece, The Great Growth Run & a Peek at Forsaken Dividend Stocks, suggests these challenges are increasingly common for FAs. We received several requests to walk through the case for dividend stocks.[1]

Get our insights direct to your inbox: SUBSCRIBE

Over the next several pages, we are going to present the historical evidence that suggests today may be an opportune time to consider shifting out of growth and into dividend-paying stocks. Our goal is to make the case in simple and straightforward language and charts.

The chart below shows the percentage of the large-cap universe that has paid a dividend since the 1960s.[2] For index fund investors, your exposure to stocks that pay you dividends has only been lower at the peak of the dot.com bubble and the prior peak in December of 2021. For some, this may be reason enough to consider adding some dedicated dividend exposure. For others, we’ll move to the next page.

YOU ARE NOW READING BASIC MEMBER LEVEL CONTENT

The chart below shows you the return owners of the S&P 500 achieved by decade, starting in 1960. For each decade, we have broken out the returns attributable to the change in stock prices vs. the returns from dividends. The bars are assembled as follows:

First bar: returns generated by dividends
Second bar: returns generated by price appreciation
Third bar: the total return for the decade

Subscribe now to unlock the full content

Already a member? Click here to log in

FAQ

SERVICES

As a reminder for our Financial Advisors: our models are available on a continuous basis, and most have been in production for over a decade. If you are looking for simple, concentrated, low turnover, and tax efficient model portfolios we would like to talk with you. KCR also offers a wide range of easy-to-use but sophisticated tools. Our toolkits can help identify mispriced stocks with the best and worst risk/reward characteristics, estimate a stock’s duration and warn you when a company is engaging in low-quality accounting. Over the last 12 years, KCR has built and offers time-tested and class-leading products built by experienced and proven money managers for fixed to low prices.
Kailash Capital Research, LLC ’s sister company, L2 Asset Management, runs market neutral, long/short, large-cap, and mid-cap long-only portfolios with a value and quality bias. L2 employs a highly disciplined investment process characterized by moderate concentration, low turnover, high tax efficiency, and low fees. While nobody can predict the future, we believe the recent resurgence in risk-adjusted returns seen across all products is the beginning of what may be a long period where speculation is punished, and prudence and patience rewarded.

Sources

[1] In no way are we suggesting this is the solution for the dilemma faced above. This was simply the path that led to this piece.

[2] This is scaled by market cap & is representative of the exposure most large cap index fund investors have to dividend paying stocks.

[3] Of US Large Cap stocks that pay dividends.

[4] Over 12,000 Americans Will Turn 65 Every Day in 2024. Are You Ready for Retirement? Brian J. O’Conner, Yahoo Finance

Disclaimer

The information, data, analyses, and opinions presented herein (a) do not constitute investment advice, (b) are provided solely for informational purposes and therefore are not, individually or collectively, an offer to buy or sell a security, (c) are not warranted to be correct, complete or accurate, and (d) are subject to change without notice. Kailash Capital Research, LLC and its affiliates (collectively, “KCR”) shall not be responsible for any trading decisions, damages, or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information herein may not be reproduced or retransmitted in any manner without the prior written consent of KCR. In preparing the information, data, analyses, and opinions presented herein, KCR has obtained data, statistics, and information from sources it believes to be reliable. KCR, however, does not perform an audit or seek independent verification of any of the data, statistics, and information it receives. KCR and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for tax, legal, or accounting advice. You should consult your tax, legal, and accounting advisors before engaging in any transaction.

Nothing herein shall limit or restrict the right of affiliates of KCR to perform investment management or advisory services for any other persons or entities. Furthermore, nothing herein shall limit or restrict affiliates of KCR from buying, selling, or trading securities or other investments for their own accounts or for the accounts of their clients. Affiliates of KCR may at any time have, acquire, increase, decrease, or dispose of the securities or other investments referenced in this publication. KCR shall have no obligation to recommend securities or investments in this publication as a result of its affiliates’ investment activities for their own accounts or for the accounts of their clients.