Dividend-Paying Bank Stocks

Another reason they are focusing on dividend-paying stocks, is because of the impact that dividends can have on total returns.

During the past 30 years, dividends have accounted for nearly a third of the total return of the S&P 500, according to Standard & Poor's. In addition, dividends reduce downside risk. If $10,000 were invested in the S&P 500 in 1972, today it would be worth $208,972 if all dividends were reinvested and only $74,547 if dividends were not reinvested. Past performance is no guarantee of future performance.

View Chart 7: Effects of Compounding Dividends

Also, because of recent changes in the Federal tax code, instead of paying taxes on dividends at their income tax rate, most investors can now pay at a rate of only 15%. As a result, stocks with dividends are more attractive, and more companies are offering dividends.