What Difference Do Dividends Make

We evaluate the investment benefits of dividend-paying stocks and make three major findings. First, high-dividend stocks have the least risk, yet return over 1.5% more per year than non-dividend payers. Second, the benefit of targeting dividend payers is conditional on investment style. Surprisingly, the benefit is largest for growth and small-cap stocks; the very firms that are usually thought to benefit the most from the reinvestment of cash flow. Third, long/short managers exploiting the value premium should focus on non-dividend-paying stocks. The return difference between non-dividend-paying, small-cap value versus small-cap growth stocks exceeds 1% per month.