Dividend Stocks Usually Beat Non-Payers. Berkshire Hathaway Is the Exception.

Dividend stocks have absolutely crushed non-payers over the last 50+ years, delivering an average annual total return of 9.2% compared to 4.2%, according to data from Ned Davis Research and Hartford Funds. However, there are some notable outliers, including Berkshire Hathaway (NYSE: BRKA)(NYSE: BRKB), which has notoriously avoided paying dividends. It has delivered an average annual return of 19.9% since Warren Buffett took it over in 1965.

Here's a look at what has made Berkshire Hathaway such an outlier. This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia.

For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue » Many investors see dividends as investments suitable only for retirees. However, the actual data on dividends tells an entirely different story.

Since 1940, roughly a third of the S&P 500's total return has come from dividend reinvestment, according to data from Morningstar and Hartford Funds. While that has fallen to around a mid-teens percentage in recent years as companies started to deemphasize dividend payments in the 1990s, dividends remain meaningful contributors to the index's total return. Digging a little deeper into the data shows that dividend stocks not only deliver higher total returns than non-payers but also have much lower volatility.

For example, dividend stocks have had a standard deviation of 16.7% since 1973 (standard deviation is a statistical measure of market volatility that shows how widely prices range from the average). Non-payers, on the other hand, had a much higher standard deviation of 21.9%. Meanwhile, companies that have initiated and grown their dividends have performed even better.

They've delivered a 10.2% average annual total return with a lower standard deviation of 16%. Put simply, dividend stocks tend to be higher-returning and less volatile, which is an ideal combination. Berkshire Hathaway has paid one dividend (in 1967) since Warren Buffett took control of the former textile company in 1965.