The original article as written by Rupert Hargreaves (apauperinthemidstofwealth.com/) is presented here by the editorial team of munKNEE.com (Your Key to Making Money!) in a slightly edited ([ ]) and abridged (…) format to provide a fast and easy read.
Dividends are a key part of most investors’ financial strategy. However, not all dividends are created equal, and chasing yield can often end in tears. To help investors select the best income stocks, Société Générale publishes a monthly income screen, highlighting the best dividend stocks in developed markets based on a number of quality criteria. The bank also publishes a high dividend risk screen, which picks out those companies that are most likely to cut their dividends in the near future. The latest results of these two screens discussed in this article will help you improve your investing process to some degree.
In addition to the two monthly dividend screens, SocGen also publishes a more comprehensive Global Income Investor report, which details the drawbacks, benefits and risks of income investing. Below are some of the key takeaways from the report, along with some top income picks.
Dividends: The biggest driver of equity returns
It’s no secret that dividends are the most significant driver of equity returns over the long-term. Dividend reinvestment is key to wealth creation and bypassing this step can severely impact your long-term returns.
For example, SocGen’s figures show that since 1970 US equities with dividends reinvested have produced an annualized real return of 5.2%. However, if dividend payments were spent instead of reinvested over the same period, the average investor’s real return would be 3% per annum. Excluding dividends entirely, equities have produced an annualized real price return of only 2.2% since 1970. The compounding effects of the dividends really do dominate returns in the long run.
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