Dividends In A Recession

If we accept that we are in a recession, should we avoid buying into companies that traditionally were valued for their dividend yields?

When it comes to dividends paying stocks studies show that:

  • Dividend-paying stocks, in part due to their income streams, tend to be more stable than their non-dividend paying brethren
  • Dividend-paying stocks in general tend to outperform non-dividend paying stocks in down markets
  • By consistently reinvesting dividends during down markets, investors can substantially expand their asset base, which puts them way ahead of the game when markets recover and stock prices soar – as they eventually do.

The important question is which are the smart dividend paying stocks in which to invest?

As a start, we must focus on companies with:

  • Established market share
  • Sustainable competitive advantage
  • Stable and/or growing earnings that provide above-average dividend yields.

While this is a very simplistic view, there is no reason to take a simple question and make it too complicated.  

There are good dividend paying stocks in the market right now, it’s up to us to separate the “wheat from the chaff”.


  1. Just because a company issues dividends doesn’t mean that it’s making profits … the two SHOULD be directly related, but often they are not:

    1. Profits (better yet, free cash flow) are a function of a sound business model,

    2. Dividends are at the whim of the board of directors.

    So, why not go direct to the source: look for companies with a strong current and (expected) future cashflow, and take your money out when YOU need it, not when the board of directors says you can have it?

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