The Dividend Sweet Spot
By Ploutos:Given the strong Seeking Alpha readership dedicated to "Investing for Income," investors examining high dividend yielding stocks should understand that empirically the highest yielding stocks have underperformed more moderate yielding stocks (defined as 3% to 6%) over long time intervals. In a September 2011 research piece by Morgan Stanley (MS) entitled: "Dividend Yield Will Rise: One Way or Another" (MS log-in required), the firm demonstrated that companies that pay dividend yields ranging from 3% to 6% have generated higher excess returns and produced higher information ratios (expected active return divided by deviation from the benchmark) over very lengthy periods. The article stated that: "Once yields exceed 6%, the market is right to trim the price of a stock, as doubts about sustainability are on average proved to be prudent. Stocks in the 3-6% dividend yield bucket have outperformed their peers - both those with higher and lower dividend yields."
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