10 Things Every Dividend Investor Should Know

7. Dividend Stocks Can Provide Downside Protection During Market Downturns:

Though dividend stocks are still subject to volatility, they can still offer some protection during market downturns. According to a report by Morningstar, dividend stocks performed well during economic slowdowns that occurred in July 1981, March 2001, and December 2007. The report also highlighted the outperformance of dividend growth strategies in inflationary periods. Dividend growth stocks delivered an annual average return of 9.93% over the trailing five years through July 2022, outperforming income strategies, which returned 7.56%.

In addition to dividend growth stocks, high-dividend stocks have also shown a stable performance during times of market instability. Capital Group cited data from Eugene Fama and Kenneth French and revealed that these equities have a more favorable 30-year downside capture ratio of 76%, compared to 124% for non-dividend stocks.