How to Outperform 98.8% of the S&P 500 With Dividend Stocks

The Fed, U.S Investments, U.S. Dollar

For 2020, the S&P 500 index returned 18.40%, so if you didn’t earn almost 20% in your stock portfolio, you might be wondering what happened. But just because the overall returns are high, it doesn’t mean all stocks are performing the same way. For example, Warren Buffett’s Berkshire Hathaway (BRK.A, BRK.B) managed to earn just 2.30% last year.

So if your stock market results fell short of your needs or expectations, you may want to consider a more reliable investment strategy.

A recent note from economist Steve Blumenthal provides the returns data. The six FAAAM stocks (Facebook, Amazon, Apple, Microsoft, and Alphabet’s Google), plus Netflix, returned 49.32% in 2020. When you remove the returns from those six hot stocks, the remaining S&P 494 returned just 4.05%. The S&P stocks classified by Morningstar as value stocks returned 1.54%, and, as noted above, Buffett’s Berkshire Hathaway posted a 2.30% return for last year.

The point is that if you picked the lucky six (1.2%) out of 500 at the start of 2020, you had a good year. If you went with some value or just about any other group of stocks, you did not do very well. Combine that with a short bear market, and it is likely that most investors buying individual stocks barely broke even or worse in 2020.

The 2020 results for the S&P 494 point out my focus on higher yield investments, which provide actual cash returns through whatever happens in the stock market. Dividend income is a form of investment return that can be counted on quarter after quarter, and in some cases like our Dividend Hunter silver stock paying a 36% yield on Friday, month after month.

For retired investors, cash dividends provide a retirement income that does not require you to sell shares to pay your expenses. This strategy works especially well when the markets are down, and you would be forced to sell at a loss to have the income you want or need. Instead, building a dividend-focused portfolio that throws off enough income to fund your retirement results in a low-stress retired lifestyle.

If you are investing towards a future retirement, reinvesting dividends provides several benefits:

  • Income investments pay dividends monthly or quarterly. When you reinvest, you buy more shares when stock prices are down and fewer shares when prices are high. You automatically buy low and get wealthier.
  • Reinvesting dividends grows your income stream as well as your account value. When you finally retire, you just “flip the switch” and have the dividend flow into your checking account.
  • Dividends are more reliable than share prices. Investing for dividends with reinvestment is a low-stress strategy that you can see working every calendar quarter.

You may be wondering, “How much can I earn with a dividend-focused strategy?” Well, the average yield from the investments in my Dividend Hunter recommendations list is 8%. It has stayed pretty close to that 8% level since I launched the service in 2020. With a properly constructed portfolio, you can earn a high cash yield which can also be stable through the years.

Think about what happened in 2020 and consider the merits of an 8% cash dividend return versus the 4% from the S&P 494.

Buy and Hold These 3 Dividend Stocks Forever

What's the one thing you need to stay retired? That's right... cash. Money to pay the bills. Money to weather any financial crisis like the one we're in now and whatever comes next. I've located three stocks that if you buy and hold them forever, they could serve as the backbone to your retirement. Click here for details.