Income-seeking investors have been frustrated in recent years as US dividend-paying stocks underperformed. But companies that offer strong payouts in a sustainable manner can help investors source surprisingly robust streams of income and equity returns.

During 2020, shares of US companies that pay no dividends returned 30.3%, while those with high dividends have fallen by at least 16% (Display, left). Poor performance for dividend stocks this year caps a lackluster five-year period. Since 2016, dividend-paying stocks returned an annualized average 7.8% per year, trailing the S&P 500 by 4.5 percentage points (Display, right). The most attractive dividend-paying stocks have done better but still lagged the market. Yet since 1971, the two highest-yielding quintiles of US stocks have returned more than 14.5% on an annualized basis, exceeding returns for the broader market at lower levels of volatility.