Franklin Templeton Investments
Public Site >Sign In  | Register
My Cart
My Cart Summary
Mandatory items may have been added.


2020 Vision

Find a Fund

By fund name, fund number, NASDAQ symbol or CUSIP

View All Funds

Asset Categories

Fund Families

Find Us

Follow Franklin Templeton

4. Quality Companies Are Not Short-Sighted

Share this material

"Survival of the fittest" isn't just a phrase from biology. It applies to free market economies as well. Economic upheavals can create market turmoil and challenges for businesses, but quality companies, with long-term vision, are best suited to adapt, survive and thrive during the recovery.

The Strength of Money

A company's financial strength can be demonstrated by strong balance sheets and strong consistent, predictable cash flows. Often, evidence of this financial strength takes the form of dividends.

The Dow Jones Industrial Average ended the two time periods below at essentially the same level at which it began. Yet the index had positive returns during both periods thanks to the compounding of dividends.

The Power of Dividends in Tumultuous Times

Dow Jones Industrial Average — Growth of $10,000 Investment

Dow Jones Industrial Average Growth
These charts are for illustrative purposes only and do not reflect the performance of any Franklin, Templeton, or Franklin Mutual Series fund. Source: Dow Jones and Company. Total return figures assume reinvestment of dividends. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results.

Dividend Strength Has Historically Tied to Strong Performance

Historically, companies that have initiated or grown dividends have outperformed companies that have cut dividends. Quality dividend payers — those paying consistent and rising dividends historically — have offered better overall results.

Average Annual Total Returns of S&P 500 Stocks by Dividend Policy30-Year Period Ended June 30, 2014

S&P 500 Stocks-Avg Annual Returns
Source: © 2014 Ned Davis Research, Inc. Indexes are unmanaged, and one cannot invest directly in an index. All stocks were categorized by the following methodology for the 12-month period ended 6/30/2014: Top Decile of Dividend Payers by Dividend Yield represents the top 10% of dividend-paying stocks in the S&P 500 (ranked by dividend yield); Dividend Cutters and Eliminators represents stocks in the S&P 500 that have lowered or eliminated their dividend; Non-Dividend-Paying Stocks represents non-dividend-paying stocks of the S&P 500; Dividend-Payers With No Change represents all dividend-paying stocks of the S&P 500 that maintained their existing dividend rate; and Dividend Growers and Initiators represents all dividend-paying stocks of the S&P 500 that raised their existing dividend or initiated a new dividend. Past performance does not guarantee future results.

The Decade Ahead

While financial strength may help a company weather volatile markets, perhaps more importantly it may position a company for competitive gains. Why? As weaker companies pull back or fold during difficult periods, stronger competitors survive to meet the market demand when markets improve.

The Bottom Line

  • High-quality companies often survive market downturns and can potentially become stronger and more efficient as a result.
  • Dividends can be an indication of a company's financial strength. Over time, compounding dividends have had a significant impact on cumulative returns, even in sideways markets.
  • Speak to a financial advisor regarding an effective way to invest in quality companies.

Another reason to be an equity investor: Equities Help Protect Purchasing Power

Are You a Financial Advisor?

Register for our Advisor Website


Sign In for more on 2020 Vision

Important Legal Information

All investments involve risks, including possible loss of principal. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions.

Investing in dividend-paying stocks involves risks. Companies cannot assure or guarantee a certain rate of return or dividend yield; they can increase, decrease, or totally eliminate their dividends without notice.

For more information on any of our funds, contact your financial advisor or download a free prospectus. Investors should carefully consider a fund’s investment goals, risks, sales charges and expenses before investing. The prospectus contains this and other information. Please read the prospectus carefully before investing or sending money.

Franklin Templeton Distributors, Inc.

You need Adobe Acrobat Reader 6.0 or higher to view and print PDF documents. Download a free version from Adobe's website.

    For US residents only.