The Problem
I don’t know about you, but I’m starting to lose patience with bonds. The yields are rock bottom. Inflation is high.
And the interest rate outlook is pointing in one direction: up. This would mean substantial losses for bonds.
So I’ve been looking into high dividend stocks as an alternative. And not just any high dividend companies: the Dividend Aristocrats.
The Dividend Aristocrats
Ultra high dividends are nice, but if the company quickly depletes its cash and has to slash them, it doesn’t do us much good. That’s why Dividend Aristocrats are so attractive.
To get on the list, a company has to raise dividends for 25 years. Straight.
As of 2021, there are 65 Dividend Aristocrats.
The Experiment
Today, I wanted to see how some of the highest yielding Dividend Aristocrats performed in the last stock market crash. It lasted from February 19 to March 23, 2020.
The S&P 500 index lost 33.9% of its value in a matter of weeks. Not gonna lie, it was interesting. 🙂
I focused on companies currently yielding above 3%. I figured there wasn’t much point in replacing bonds with stocks that yield only slightly more.
Only 17 stocks made it into this illustrious group. Call them the Dividend Royals.
The Results
So how did the Dividend Royals do in the last crash?
Not terribly well. On average, they dropped 36%. That’s slightly worse than the S&P 500’s 33.9%.
Why did the Dividend Royals do worse? The fact that a small number of energy and real estate companies in this group suffered huge losses is one major factor.
Bonds, boring and frustrating as they are, did much better. The long-term Treasury fund actually gained 11.7%. The bond market index fund I own lost just 1.2%.
But today, they yield just 1.91% and 1.41% respectively.
Conclusion
Despite being solid, mature companies, high dividend stocks fell further than the market in the most recent crash. However, these creme de la creme of the Dividend Aristocrats all kept paying their fat dividends.
If you can stomach the capital loss, they may be a better bet.
More on markets:
Starting a Financial Plan from 0
Where Can We Hide in a Financial Crisis?
Note: Price data comes from Yahoo! Finance
Photo: “Stock Market Crisis Over” by Wagner T. Cassimiro ‘Aranha’ is licensed under CC BY 2.0
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