How Reliable Is The Income Stream From Dividend Stocks?

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

If you’re trying to achieve early retirement, that means you have less time for compound interest and more time living off your investments. As a result, many early retirement investors like to own income-oriented investments like rental properties or dividend stocks. People used to own bonds and also be happy with that income when the interest rates were well above the inflation rate, but right now that is not the case.

So a good question is – How reliable is the income stream from dividend stocks? Joseph G. Paul of the AllianceBerstein blog tried to address this issues a couple different ways. First, he pointed out the dividend income from the S&P 500 went up in 39 out of the last 46 years. When it did drop, the largest single year drop was 20% from 2008 to 2009.

Now imagine that own the S&P 500 index or a High Divided Yield index (top 1/3 of S&P 500 by dividend yield) and simply spend the dividend income every year, but don’t sell any shares. 10 years later, would you have the same amount of money that you started with? (That’s what would happen with a 10-year bond.) Here are the results:


In fact, in 87% of 10-year periods that we surveyed, investors in equities got their money back receiving, on average, more than twice as much (Display) from a $100 investment. The high-dividend-yield portfolio was even more stable than the market as a whole, only failing to recover the initial investment in one out of 38 10-year periods.

The AB article makes a case for the suitability of a diversified basket of dividend stocks for long-term investors that want to spend the income every year without selling shares, with the warning that they also need the ability to ignore share price fluctuations and avoid selling in a down market.

On the other hand, financial author William Bernstein wrote in his book The Ages of the Investor that you can only treat 50% of your dividend income as absolutely reliable. His reasoning, at least as quoted from the book:

If you counted on your stock holdings to see you through retirement, you’re likely to be seriously disappointed. Yet, there is a small part of the equity portfolio that can be considered in the funding of retirement: the “safe dividend flow” from stock holdings. Although the value of stocks can fluctuate wildly, their stream of income is much more stable. At no point in the history of the U.S.stock market has its real dividend stream fallen by more than half, even during the Great Depression. During the most recent financial crisis, for example, although stock prices fell by more than 50%, dividends also dropped, but by only 23% from their peak, and only temporarily.

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

User Generated Content Disclosure: Comments and/or responses are not provided or commissioned by any advertiser. Comments and/or responses have not been reviewed, approved or otherwise endorsed by any advertiser. It is not any advertiser's responsibility to ensure all posts and/or questions are answered.


  1. Though not mentioned, do you think that this is actually more of a recommendation for preferred shares which have a higher interest rate and greater principle protection then the dividend stock strategy in the article?

  2. great information! Thanks

  3. Is there such a fund? The Vanguard High Dividend Yield Index Fund holds 395 stocks. The study was based on using about 167 stocks.

  4. Dividends are always positive, and they tend to grow over time. Thus, they are superior to bonds, since dividend stocks provide income which maintains its purchasing power. Investors can build a portfolio of individually selected companies, and live off that dividend income, and never have to worry about stock market fluctuations or bear markets.

    This is what I am doing for my retirement planning. I don’t worry about 4% rule, running out of money or selling to live during the next bear market. I simply plan to spend the dividends, and go on with my life.

    Best Regards,

    Dividend Growth Investor

  5. I know that as I build up a portfolio for retirement, I am not going to be relying on just one stream. I will have investment income, rental real estate income and income from other side businesses that I have. This is the only way I know I will be comfortable with the income that I am bringing in. The moment that opened my eyes was the financial crisis in 2008 when so many dividend paying stocks cut back or turned off their dividends.

  6. The world of dividends has never made sense to me as stock prices drop by the amount of the dividend distribution on the ex-dividend date. Selling shares to ‘create your own dividends’ is no different from having the company distribute dividends to you…except that you have control over the amount, the timing, and the tax treatment is often more preferable. Larry Swedroe speaks to some of this here:

    • You bring up a long-standing debate about dividend stocks, and I’ll leave the counterargument for another time or someone else. My personal view is I’d like to hold market-weighted index funds (or perhaps a value index fund) and just spend the dividends. In that case, total return = dividend return.

    • The drop in price on ex-dividend day is partly psychological, people buying and selling as a short term play. Yet the perceived valuation of the company remains the same and a week or so later the stock is the same price. Otherwise dividend stocks would be roughly half there price every 10 to 15 years. Instead we see growth and as a whole they beat market indexes (see VYM versus Dow or S&P500).

      Common charts show dividend stocks at a huge disadvantage because they don’t add in gains from reinvested dividends. If they did, it’d often be no contest, dividends would be seen as hugely advantaged. Not only do they does interest compound but the rate of growth increases as dividends are raised (in a good dividend stock). In time these are huge gains, not seen in charts, but when reinvested become a huge factor in the 10 to 20 year range.

      Personally, I like a mix. A solid ‘lazy’ portfolio of broad ranged low cost ETF’s, a portfolio of good high dividend stocks w/ growth potential, and a smaller stock portfolio with somewhat riskier stocks bought and sold using 50 day moving averages, that’ll stay out of long term falling markets.

  7. Interesting article, thank you. Now the question becomes how does the income stream from dividend stocks compare to commercial real estate holdings?

Speak Your Mind