Benefits of Stock and Bond Dividends Javascript must be enabled to use this site. Please enable Javascript in your browser and try again. × Search search POPULAR SEARCHES SUGGESTED LINKS Join AARP for just $9 per year when you sign up for a 5-year term. Get instant access to members-only products and hundreds of discounts, a free second membership, and a subscription to AARP the Magazine. Leaving AARP.org Website You are now leaving AARP.org and going to a website that is not operated by AARP. A different privacy policy and terms of service will apply.

Why Investors Should Love Dividends

Reliable retirement income with inflation protection

E+ / Getty Images Money managers often wax rhapsodic about dividends, and with good reason: Over time, dividends account for about one-third of stock returns. Retirees should be equally enthusiastic about dividends, and not just because of the bump they give to total return: A healthy dividend yield can also make for a nice stream of retirement income. Get instant access to members-only products and hundreds of discounts, a free second membership, and a subscription to AARP the Magazine.

Long-term payoffs

Entertainment $3 off popcorn and soft drink combos See more Entertainment offers > Dividends are cash payouts from corporations to shareholders and, if you reinvest those dividends in additional shares, the long-term payoff is amazing. For example, a $10,000 investment in the Standard & Poor's (S&P) 500 stock index 30 years ago would be worth $90,782 as of the end of November 2019. Had you reinvested dividends over that time, you'd be sitting on $171,661, according to investment tracker Morningstar. The S&P 500 is made up of America's largest publicly traded companies. For ways to save and more, get .

Dividends have other charms

First, many companies raise their dividends annually, even if it's only by a small amount. You'll never get that from a bank certificate of deposit, or from most bonds. According to S&P, 57 members of the S&P 500, dubbed the Dividend Aristocrats, have raised their dividends every year for the past 25 years — or more. The Aristocrats include familiar companies such as 3M (61 consecutive years of dividend hikes), Coca-Cola (57 years) and Colgate-Palmolive (57 years). In the past decade, the Aristocrats have gained an average 14.78 percent a year, compared with 13.66 percent for the S&P 500. A company that raises its dividend is signaling that it's confident it has the cash and earnings to continue to pay it. While dividend cuts aren't unknown — we're looking at you, General Electric — Wall Street looks at a dividend cut the same way Dracula looks at the sunrise. When a company cuts its dividend, its share price usually goes with it, and no CEO likes that. The other charm of dividends? Most dividends are than ordinary income. The tax rate for so-called qualified dividends — your brokerage can help you determine which dividends are qualified for the lower tax treatment — ranges from zero to 20 percent. (High earners with significant investment income can also face an additional 3.8 percent net investment income tax that went into effect in 2013.) A simple example: If you were to get $10,000 of taxable income and you were in the top 37 percent tax bracket, you'd hand over $3,700 to the federal government. If you got $10,000 from qualified dividends, your tax bill would fall to $2,380 — a savings of $1,320 — based on the 20 percent tax rate plus the 3.8 percent tax on high earners. AARP Membership — $12 for your first year when you sign up for Automatic Renewal Get instant access to members-only products and hundreds of discounts, a free second membership, and a subscription to AARP the Magazine. More on retirement AARP Membership — $12 for your first year when you sign up for Automatic Renewal Get instant access to members-only products and hundreds of discounts, a free second membership, and a subscription to AARP the Magazine. AARP VALUE & MEMBER BENEFITS See more Health & Wellness offers > See more Flights & Vacation Packages offers > See more Finances offers > See more Health & Wellness offers > SAVE MONEY WITH THESE LIMITED-TIME OFFERS