Dividend Investing is Ideal for the Passive Investor - Coke (KO), Du Pont (DD) & JP Morgan (JPM)

Over long time periods, stocks that pay high dividends usually outperform those that don't on a total return basis.

With the recent release of the movie "Wall Street 2: Money Never Sleeps", the idea of free-wheeling traders who make millions in the stock market has once again rose to prominence.

While there is no question that some traders do make money, the old saying "for every winner there is a loser" springs to mind. However if you make dividend investing a core theme of your portfolio, you are likely to make more consistent returns in the long-run.

This could perhaps be best illustrated by comparing two highly regarded dividend paying stocks in the form of beverage giant The Coca-Cola Company (KO) and industrial heavyweight Du Pont (DD) to the financial wizards at JP Morgan Chase (JPM).

Five years ago JP Morgan (JPM) was trading at around $33.85, and it is now trading at just under $40. Throw in an average dividend yield of 1% over the period and you get a total return of 22%.

In the case of Du Pont (DD), the share price has not set the world alight rising from $39.43 to $45.72, but with a dividend yield of around 3.75% this boosted total return to 34.7%. Coca-Cola (KO) shareholders enjoyed a combination of both capital appreciation and dividends. While the yield of 3% does not look all that spectacular on paper, if you had bought and held Coca-Cola (KO) over the period, you would have made a 50% gain in 5 years, which is not bad going through a global financial crisis.

Of course it could be argued that comparing an investment bank with blue-chips like Du Pont (DD) or Coca-Cola (KO) is not necessarily fair considering the global financial crisis. What the example does show though is two things: firstly that dividends provide a passive income which contributes positively to the investment process and secondly that companies with strong cash flows are well respected and rewarded by the market with superior ratings.

Sticking with the "Wall Street" movie theme, perhaps the value of dividend investing is best summed up by Michael Douglas' character Gordon Gekko when he says: "I don't throw darts at a board. I bet on sure things. Read Sun-tzu, The Art of War. Every battle is won before it is ever fought."

Similarly why should you as an investor try and throw darts at a dartboard in the hope that you can find the next glamour share, when there are blue-chips with a solid dividend yield offering you a passive income which compliments your return in the long run.

While the cronies on Wall Street were sweating over tumbling stock prices through the financial crisis, the investor who bought a stock for a stable dividend payer like Coke (KO) or Du Pont (DD) still got their check deposited into their account with monotonous regularity.

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