It pays to watch dividends

NEW YORK – Blue chip stocks with a high dividend used to be called, dismissively, widow and orphan stocks. But grandma was right: It pays to pay attention to dividends.

If you invested $10,000 in Standard & Poor’s 500 stocks that paid a dividend in 1979 and another $10,000 in stocks that didn’t, your dividend-paying stocks would have grown to $379,030 by 2005. The group that didn’t pay a dividend would have grown, too, but much less, hitting $230,027 by 2005.

Slicing and dicing short-term timeframes can make dividend payers look worse, but over the long run, they do better than their non-dividend-paying peers, and right now, they’re shining.

Stocks with the very best dividend yields are the only group with double-digit year-to-date returns, up 10.2 percent for the year, according to Merrill Lynch & Co. More broadly, dividend paying stocks in the Standard & Poor’s 500 gained 4.29 percent for the first seven months of the year, while non-payers lost 3.26 percent, according to S&P.

What is it about dividends?

Dividends used to be one of investors’ main reasons for owning stocks.

Said Howard Silverblatt, senior index analyst at S&P, “The dividend, to some degrees, acts as an anchor. You don’t make as much in the good years, but you don’t lose as much in the bad years.”