Written and copyright © 2008-2010 by Thomas N. Bulkowski. All rights reserved.

This page reviews a study concerning the stock performance of companies with and without dividends.

Summary

Please note that a more extensive study shows the reverse of what is described below. In the first year, stocks not paying a dividend outperforms by 11.3% to 10.9%. In the following 4 years, the dividend payers outperform by 2 percentage points in year 2, growing to 9.3 percentage points after year 5, and that does not include the return from the dividend itself (in other words, just price appreciation). The analysis uses 10,422 samples from 914 stocks.

Value Line defines dividends declared per share as "the common dividends per share declared (but not necessarily paid) during the company’s operating, fiscal year."

The commonly held belief is that paying a dividend to stockholders leaves less for the company to invest in its own business. If that is true, then companies paying a dividend should have stock that underperforms those not paying a dividend.

I found that when a company does not pay a dividend, it tends to outperform 80% of the time.

Methodology

I used the Value Line investment survey and typed in their dividends numbers to build a database of 178 stocks with data ranging from 12/30/1991 to 7/11/2008.

After completing the database, I logged the close-to-close price change from 1 to 5 years out, looking forward from the base year. The base year ranged from 1992 to 2006. Not all stocks covered the entire range. Years with no numbers were excluded. The price change measured from the close on the last trading day of each year. Years 2008 and later are not included since the year had not completed as of the time of this study.

Results

The following table shows the stock performance of companies with and without dividends over time.

For example, if companies paid a dividend during year 0, their stock gained an average of 9.8% the following year. Companies that paid no dividend showed stock prices rising 13.2%.

In four of five years (80%), companies not paying dividends showed better stock performance over the coming one to five years than did those companies paying a dividend.

-- Thomas Bulkowski