And what’s true for the US is also true for its North American peer, Canada. Another study this time by US fund management group Hartford noted if we start at 1960, 69% of the total return of the S&P 500 Index can be attributed to reinvested dividends and the power of compounding. During the same period, the return of the S&P 500 with dividends reinvested would have been $7,219. 1, 1930, would have grown to $214 by the end of July 2023. According to S&P Dow Jones, if you’d have started in 1930 with $1 invested in US equities, excluding dividends, the return of the S&P 500 on Jan. From 1930–2022, dividend income’s contribution to the total return of the S&P 500 Index averaged 41% but peaked at above 50% in the 1940s and 1970s and dipped below 30% in the 1950s, 1990s and 2010s.Īnd of course, the compounding effect of receiving a dividend cheque, the business increasing the dividend payout every year and the investor subsequently reinvesting the dividend cheque in the stock is huge. It's important to say that the contribution of dividends to total returns varies, even in the US. Another study this time by analysts at S&P Dow Jones looked at returns since 1926 and found dividends have contributed approximately 32% of total return for the S&P 500, while capital appreciation (multiple expansion) has contributed 68%. In the US by contrast, multiple expansion was a much more significant element although of course US stocks do pay a dividend - according to academics at Yale, the median dividend yield for the entire period since the end of WW2 was 2.90%. Looking globally, they found that since 1970 the annualised real return from investing in equities was just over 5% pa of which the real price return (multiples expansion) was just over 2% implying that the rest of the total return comprised dividends, dividend payout growth and dividend reinvestment. That’s true also for equities in France, Australia and Germany. Looking at returns from 1970 onwards they’ve found that in the UK nearly all the returns from investing in equities through to today have come from the dividend and the subsequent growth of that dividend payout over time. Analysts at French investment bank SocGen have looked at different countries in different decades and broken down how that total shareholder return has grown. In the last few decades, that multiple for US stocks has increased.Īnalysts look at all these moving parts (dividends, dividend payout growth, dividend reinvestment and multiple expansion) through the lens of what’s called total shareholder returns. the multiple investors are willing to pay for those shares changes over time. In addition, shares can also be re-rated i.e. Many investors then choose to reinvest that dividend back into those shares. The dividend cheque is a direct return of course, and that payout can increase over time as the corporation grows its profits. Those increasing dividend payouts remind us that investors in equities receive a return from many different sources. Ten years ago, that total payout amounted to just $330 billion. According to analysts at S&P Dow Jones, the total dividend payout for all stocks in the benchmark S&P 500 index hit – by Febru$600 billion. It's also very normal for US corporations to pay a dividend. At some point, your potential growth rate slows down and at that point, you need to reward patient investors for providing you with the cash to expand. But Meta’s boss Mark Zuckerberg has realised once essential bit of investment logic. The payout in absolute terms makes it the 31st biggest dividend payer in the S&P 500 and should increase the S&P 500 yield by 0.74%, to 1.4609% from 1.4501% pa.įor many investors, this seemed a surprise at the time – a growth stock paying a dividend? Surely the best thing to do is to keep reinvesting back in the business. That annual dividend will cost the firm $4.4 billion. But those humble dividend cheques matter over the long term, even in North America, the home of the Magnificent Seven.Ī few weeks ago, the social network tech leviathan Meta announced that it would pay its first dividend, at a $0.50 quarterly rate, with a yield of 0.51% (using the closing price on the day). Investors in America have swarmed into growth stocks with rampant earnings growth and fat margins, ignoring boring old dividends. Dividends really do matter over the long term, even in North America
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