Recession fears sent the Nasdaq Composite tumbling into a bear market this year. But while the index itself is down 35%, certain dividend-paying constituents have fallen less sharply. For instance, Microsoft (NASDAQ: MSFT) and Costco Wholesale (NASDAQ: COST) have seen their share prices drop 30% and 24%, respectively.

That illustrates something many passive income investors already know. Businesses that pay dividends -- especially those that consistently raise their dividends -- tend to outperform the broader market. The reason for that is simple. Any business that generates enough cash to regularly increase its payout is often backed by strong fundamentals.

Microsoft and Costco are great examples. Over the last three years, the S&P 500 and the Nasdaq Composite have climbed 19% and 17%, respectively, but shares of Microsoft and Costco have soared 52% and 57%, respectively. That pattern of outperformance holds over the last five and 10 years as well, and investors have good reason to believe it will continue. Here's why.

Continue reading

Source Fool.com