Are High Dividend Stocks Safer During a Stock Market Crash?

  • Dividend stocks can provide incredible safety during stock market crashes.
  • However, it’s not like just any old dividend stock will automatically protect you from every crash. Only the best dividend stocks provide true crash protection.
  • In addition to dividends, we share several other strategies that provide a powerful safety net against a market selloff.  

The Dow just fell 831 points, its third-largest one-day point drop in history.

In response, we’ve heard a number of investors ask, “Are high dividend stocks safer during a stock market crash?”

Now we don’t know if yesterday’s selloff marked the beginning of a stock market crash. Stock markets are notoriously difficult to forecast (as we fully explained in our article, Should I Sell Everything Now to Avoid a Stock Market Crash?).

But ignoring the question of trying to time the market, are high yield stocks good for a stock market crash?

Well, it depends. I would say the best dividend stocks can absolutely provide incredible safety during some stock market crashes. But it’s not like just any old dividend stocks will automatically protect you from every crash.

Let’s look at some past market crashes to see how dividend stocks performed. Below is the maximum decline from the highest high to the lowest low of the selloff for several different portfolios during the last two stock market crashes.

We’ll compare the selloff for the S&P 500 ETF (SPY) vs:

  • iShares Select Dividend ETF (DVY)
  • Vanguard Dividend Appreciation ETF (VIG)
  • A hypothetical historical backtest of our Dividend Stock Investor newsletter portfolio which buys the 25 best high dividend stocks in the market

Here are the results from the 2001 – 2002 stock market crash.

2001 – 2002 market crash:

  • S&P 500 ETF (SPY) declined 47%
  • iShares Select Dividend ETF (DVY) declined 31%
  • Vanguard Dividend Appreciation ETF (VIG) declined 31%
  • Dividend Stock Investor newsletter declined 19%

During the 2001 – 2002 crash, the S&P 500 declined 47% from peak to trough, whereas two popular dividend ETFs (DVY and VIG) declined only 31% – a substantial outperformance.

But a hypothetical historical backtest of our Dividend Stock Investor newsletter declined only 19% – beating the S&P 500’s decline by nearly 30 percentage points.

Let’s look now at a more recent stock market crash.

2008 – 2009 market crash:

  • S&P 500 ETF (SPY) declined 55%
  • iShares Select Dividend ETF (DVY) declined 63%
  • Vanguard Dividend Appreciation ETF (VIG) declined 47%
  • Dividend Stock Investor newsletter declined 47%

During the 2008 – 2009 market crash, results were more mixed. The S&P 500 declined from top to bottom by a brutal 55%. While the Vanguard Dividend Appreciation ETF (VIG) was down only 47%, the iShares Select Dividend ETF (DVY) was down 63%, much worse than the S&P 500.

A hypothetical historical backtest of our Dividend Stock Investor newsletter declined only 47%, matching the Vanguard Dividend Appreciation ETF (VIG) and outperforming the S&P 500.

Let’s look at another recent example, the market correction that happened in February of 2018. Here we see that all four portfolios declined roughly the same amount, although all three of the dividend portfolios did show a slight edge compared to the S&P 500.

Feb 2018 market correction:

  • S&P 500 ETF (SPY) declined 10.1%
  • iShares Select Dividend ETF (DVY) declined 9.2%
  • Vanguard Dividend Appreciation ETF (VIG) declined 9.8%
  • Dividend Stock Investor newsletter declined 9.8%

So are high dividend stocks good for a market crash? Clearly it depends on what type of dividend stocks and what type of market crash. But in general, dividend stocks can provide a powerful defense against selloffs. 

Steady dividend income during a market decline can help provide you with regular incoming cash payments even as the market pulls back. And reinvesting the dividends while shares are selling off allows you to buy more shares at a lower price and lower your cost basis.

While dividends are powerful, they’re only one type of defense against a stock market crash. Through extensive research, we’ve found that there are several other strategies that also provide a powerful safety net against a market selloff. Focusing on value stocks, buyback stocks, and stocks with a strong earnings history can help protect your portfolio during a stock market crash.

If you’re a defensive investor looking to protect your portfolio from a potential market selloff, we definitely encourage you to seek out the best high dividend stocks. History shows they can help you outperform the market during hard times.

But you can’t buy just any old high yield stocks and expect your portfolio not to decline at all. Even the best dividend stocks still sell off during crashes and corrections, but the goal is to decline significantly less than the market.

We recommend you also consider value, buybacks, earnings history, and other indicators of high quality stocks.

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Todd Lincoln


Passionate stock market investor with deep experience trading small cap, dividend, and growth stocks.

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