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Why Buy Plain Dividends When There Are Super Dividends?


You could blame it on "the lost decade" or the volatility and stress of the post-crisis stock market, but the once-vaunted concept of buy and hold investing has faced a major rethink lately, having been downgraded and even declared dead in many trading circles.

At the same time, so-called 'total return investing has never been more popular, as the appeal and superior track record achieved through a combination of growth and income - often referred to as "getting paid to wait" - continues to grow.

In fact, dividends are so important to an investor's overall success story that some have re-prioritized the growth and income approach and now give income the top billing.

"People understand that there are a lot of studies that point to dividend-paying stocks performing better than non-dividend paying stocks over the long-term," says Bruno del Ama, CEO of the Global X family of ETFs in the attached video, "but there's not so much understanding as to the difference between dividend payers."

What he means is that by owning the top dividend-payers , investors can not only experience a better ride, but a smother ride.

"In our opinion a lot of people are focusing, rightly, on dividends, but maybe on the wrong type of dividend paying companies," he says, referring to his firms Super Dividend ETF (SDIV) which he describes as an equal-weighted basket of 100 of the world's top dividend payers, of which only about one-third are U.S. companies. Not surprisingly, REITs, Telecom and Financials account for more than half the portfolio.

But del Ama says there's a catch, since he also filters out the noise by seeking the top 10% of dividend payers from within the 2nd quintile of overall yields.

"Our studies show the higher the dividend that these companies pay, the lower the volatility of those stocks and the higher the return," he says, calling it very counter-intuitive. "Dividends put a tremendous amount of discipline on the management of a company."