☕️ Sunday Coffee: How well does the MaxDividends strategy work for building a growing passive income?
Recently, the analysts at Hartford Funds, in collaboration with Ned Davis Research, updated their extensive study on dividend stocks ("The Power of Dividends: Past, Present, and Future").
MaxDividends is subscriber’s supported newsletter with community and community member’s tools to start building long-term growing passive income to live off dividends.
This study compared the performance and volatility of dividend-paying stocks to non-payers over 50 years (1973-2023).
Here’s what they found:
Non-dividend paying stocks: Averaged a 4.27% annual return and were 18% more volatile than the S&P 500.
Dividend-paying stocks: Delivered a 9.17% average annual return and were 6% less volatile than the S&P 500.
Why Dividends Matter
Companies that regularly pay dividends tend to be profitable and transparent, offering a reliable growth outlook. These businesses are expected to increase in value over time, enriching their patient shareholders.
Before diving into investments, my team and I did thorough research on the best ways to invest in reliable, high-dividend stocks. Here’s what we concluded:
1. Predictable Income: Dividends are profits you will definitely receive. They provide a predictable, tangible income stream that goes straight into your pocket every month or quarter.
2. Reinvest for Growth: Reinvesting your dividends can create a snowball effect. As you buy more shares, you earn more dividends, which increases your total income.
3. Stability Over Speculation: Investing in stocks that don’t pay dividends means you’re banking on price growth, which can be unpredictable. High-dividend stocks offer clear, regular payouts, providing stability regardless of market conditions.
“Anybody who invested in growth stocks last year, for instance, would have watched their investment go up, up , up, then come crashing back down in January. But dividends can't be clawed back, once they're paid out, that gain is permanent.”
Unknown but experienced investor on Reddit
The Numbers Speak
What can you expect from the MaxDividends strategy? Let’s look at the research:
Fact #1: Stability of Dividend Payments:
91% of MaxDividends companies continue paying dividends without interruption 15+ years after purchase.
84% continue paying dividends without interruption 20+ years after purchase.
We analyzed 25 years of US and global stock markets, focusing on the stability of dividend payments from companies selected using the MaxDividends strategy. Here are the results:
Holding Period | Stopped Paying Dividends (%)
2 years - 3.35%
5 years - 4.26%
7 years - 7.69%
10+ years - 8.47%
15+ years - 10.14%
20+ years - 17.35%Fact #2: Growing Dividend Payments:
96% of portfolios based on MaxDividends stocks pay more dividends the following year compared to the purchase year, without additional investments.
We selected 50 random 1-year time periods, starting in 1999 and ending in 2024. For each selected year, we formed the Top 10 stocks according to the MaxDividends strategy.
Next, we calculated the amount of dividends that these companies paid at the time of purchase and compared them with the amount of dividends they paid after 1 year.
In all 50 cases, the dividend amount for the following year was higher than the dividend amount at the time of purchase without reinvestment of dividends.
In each case, the dividend amount increased by an average of 9.63% year-over-year. That is, if at the beginning of the period you had $100 in dividends, then next year you will have $109.63.
Timeline of U.S. Stock Market Crashes
2008 Recession: 159 companies suite to parameters of MaxDividends stocks
147 increased dividends that year
11 kept the same payments
1 cut dividends ~15%
0 canceled dividend payouts
2015 Stock Market Selloff: 137 companies suite to parameters of MaxDividends stocks
125 increased dividends that year
10 kept the same payments
2 cut average ~17%
0 canceled dividend payouts
2020 Coronavirus Crash: 129 companies suite to parameters of MaxDividends stocks
117 increased dividends that year
12 kept the same payments
0 cut the dividend payments
0 canceled dividend payouts
Fact #3: Long-term performance:
MaxDividends stock outperforms the broader market over the long term 11.32% vs. 9.91% for the broad market
We ran 100+ multiple-period single tests and 250+ rolling tests
Buying the Top 10 MaxDividends stocks and selling them after a year, reinvesting the dividends. Here’s what we found:
An example of one such test is shown in the screenshot below. MaxDividends reinvestment-adjusted return: +12.09% per annum over 20 years, which is 2.18% higher than the broad market’s return.
In another case, we used the MaxDividends app strategy, buying the Top 10 MaxDividends shares and selling companies only if they:
A) stopped paying/raising dividends
B) became unprofitable, did not develop any longer
Rolling tests results. 65 scenarios.
Average annual return: 11.32% vs. 9.91% for the broad market.
Average MaxDrawdown: -46.02% vs. -51.90% for the broad market.
Portfolio average deviation: 14.82% vs. 14.99% for the broad market.
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Conclusion
Our extensive tests demonstrate that choosing reliable, high-dividend stocks can provide a solid foundation for capital growth and passive income. With the MaxDividends strategy, you can enjoy predictable, growing dividends and long-term stability.
Best regards, Max Dividends
MaxDividends Key Concept
Predictability in important things is the foundation of peace of mind. Peace of mind is the basis of financial well-being. MaxDividends is all about peace of mind.
At MaxDividends, we focus on a dividend growth strategy. It’s a great fit for investors who want capital appreciation, a decent level of safety, and growing income.
As the name suggests, dividend growth investing is all about finding stocks that pay dividends and can keep growing them over time.
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MaxDividends Stocks are Unique
They not only provide income but have a strong track record of increasing that income over the years.
Plus, investing in companies that consistently raise dividends has historically been a solid strategy.
Do you know what is the power of the MaxDividends strategy? It is that even if I stop investing right now, my dividend income will continue to grow. And even a conservative forecast says that in the next 10 years the growth will be 4 times.
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MaxDividends Strategy
My Own Dividend Story
To see how the MaxDividends strategy works in practice, I started an experiment: $12,000 a month in 120 months.
I calculated that by investing $12,000 a month with a starting capital of $ 0.00 😳 and reinvesting dividends, I will reach my goal in ~120 months. Until the end of the experiment, I will reinvest all received dividends back.
🚴 Year 1: ~10% of the Goal
🚴 Year 5: ~45% of the Goal
🏆 Year 10: 100% of the Goal. Mission complete!
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Every week on Fridays, I make purchases according to the plan and post the strategy results on the MaxDividends blog. Stay tuned!
MaxDividends Mission
Help & support everyone on the way to build growing passive income, retire early and live off dividends. To support this goal we launched MaxDividends App.
MaxDividends App
We’re building the best app in the world for dividend investors to help everyone on the way retire early and live off dividends.
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