Does Long-Term Dividend Investing Really Work? This Study Says "Definitely."
Key Points
One study found that dividend growth stocks have historically outperformed other types of stocks.
They've also done so with much lower volatility than the broader market.
Here are the rest of the results of the study.
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The last few years have been almost entirely about investing in tech, growth, and artificial intelligence (AI) stocks. That trade has worked immensely well recently. But something has worked even better over the long term.
Dividend stocks can look very boring at times. Names like Procter & Gamble, Johnson & Johnson, and Colgate-Palmolive don't seem nearly as exciting as Nvidia, Micron Technology, and SK Hynix. Yet, exciting doesn't always translate into returns.
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What if boring actually ends up being a better investment strategy over decades? A study from Ned Davis Research examined more than 50 years of S&P 500 returns based on the company's dividend policy. The finding? Investing in dividend stocks works pretty well!
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Dividend growth has a strong track record
Ned Davis Research separated S&P 500 stocks into several categories based on their dividend policies. It examined performance for the 50 years ending in December 2025. The study found the following:
- Companies that raised or initiated dividends produced an average annual return of 13%. That beat the 12.7% average return of all dividend-paying stocks.
- Companies that did not pay dividends returned 11.5% annually.
- Companies that paid but did not raise their dividends averaged an 11.1% annual return.
- Dividend cutters and eliminators returned just 9.5%.
That's a pretty clear pattern. The performance advantage of dividend growers and initiators may not seem like much. But over the course of half a century, that can build to tens of thousands of dollars or more. The study also showed that dividend growers demonstrated less risk than other equity categories. Their standard deviation of returns over the study period was 16% compared to 22% for others.
That combination of better performance and lower volatility is very attractive for long-term investors.
Dividend stocks are a strong pairing with growth and tech stocks
Dividend stocks and growth stocks have very different risk/reward profiles.
Dividend growers tend to be very mature and established businesses. Their revenue and earnings growth rates are often lower than those of other businesses, but they typically generate strong cash flows and have the balance sheet strength to continue paying dividends to shareholders.
Growth stocks usually have faster revenue and growth profiles. They're usually reinvesting in the business for further growth and don't prioritize dividend payments. Balance sheets may or may not be strong, depending on the success of the business model.
Obviously, growth stocks tend to be more volatile but usually have higher return potential. Dividend growers are usually thought to have lower growth potential but tend to be more stable.
The Ned Davis study shows that dividend growth stocks can actually outperform over time despite their lower risk. Pairing these two groups could deliver strong diversification benefits and limit overall portfolio risk.
For investors already tilted heavily toward tech and growth stocks (or even just the S&P 500), dividend stocks can be a strong addition.
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David Dierking has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Colgate-Palmolive, Micron Technology, and Nvidia. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.
