Dividends Rule

Money (Sept. 2004; pgs. 88-92) has an article discussing the benefits of dividend bearing stocks and how to pick the right ones for maximum investment returns.

During 2004, up to the publication of the article, dividend bearing stocks had outperformed non-dividend bearding stocks by 11.4%. The PE ratios between growth stocks and blue chip stocks is about half of what it was in 2000, though this is due to the drop in the prices of growth stocks during the bear market.

Research has found that it is best to invest in stocks that have high dividend growth, rather than having the highest dividends. The article recommends looking for what they call growth and income investments. It recommends looking for a yield between 2% and 4% with annual earnings growth of at least 9%. The best values will trade at a PE ratio of less than 20 times the following years earnings.