From an excellent research piece by Tweedy Brown:
• Over the long term, the return from dividends has been a significant contributor to the
total returns produced by equity securities.
• There is an abundance of empirical evidence which suggests that portfolios consisting of
higher dividend yielding securities produce returns that are attractive relative to loweryielding portfolios and to overall stock market returns over long measurement periods.
• Stocks with high and apparent sustainable dividend yields that are competitive with high
quality bond yields may be more resistant to a decline in price than lower-yielding
securities because the stock is in effect “yield supported”. The reinvestment of dividends
during stock market declines has also been shown to lessen the time necessary to recoup
• The ability to pay cash dividends is a positive factor in assessing the underlying health of a
company and the quality of its earnings. This is particularly pertinent in light of the
complexity of corporate accounting and numerous recent examples of “earnings
management”, including occasionally fraudulent earnings manipulation.
• For years and years, U.S. tax policy disadvantaged dividends, applying high ordinary
income tax rates to the dividends paid to investors. This changed with the enactment of
the 2003 Jobs and Growth Tax Relief Reconciliation Act. For individuals, qualified
dividends are now taxed at the same favorable rates as long-term capital gains (15%).