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Importance of Dividends in Investing

The S&P 500 index recently hit an all-time high, driven significantly by reinvested dividends over the long-term. Dividends now make up nearly half of the total return of the S&P 500 over the past 40 years. In a low interest rate environment, dividends from equities are becoming increasingly important for generating retirement income. While dividend stocks can help stabilize a portfolio and provide income, they may underperform the broader market during strong bull markets.

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Theng Roger
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14 views1 page

Importance of Dividends in Investing

The S&P 500 index recently hit an all-time high, driven significantly by reinvested dividends over the long-term. Dividends now make up nearly half of the total return of the S&P 500 over the past 40 years. In a low interest rate environment, dividends from equities are becoming increasingly important for generating retirement income. While dividend stocks can help stabilize a portfolio and provide income, they may underperform the broader market during strong bull markets.

Uploaded by

Theng Roger
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd

Did anyone bother to notice that the Standard & Poors 500 index quietly hit an all-time high

this week? ll-time high! that is! i" you were good and rein#ested your di#idends! as all sel"res$ecting brokerage "irms gi#e you the o$tion o" doing% &reat 'ecession and (obless reco#ery be damned) *oud be ahead o" where you were when the market set its high in +ctober ,00- .otherwise! sans di#idend rein#estment! the index remains about /0 $ercent o"" that $eak0% 1his should underscore the im$ortance o" di#idends to any sane $ort"olio strategy% "ter all! these seemingly boring! old-school $ayouts! duti"ully rein#ested! ha#e contributed nearly hal" the markets long-term total return% 2n the $ast /0 years alone! the S&P 5003s total! di#idend-rein#ested return more than doubled its sim$le $rice gain% nd di#idends mean e#en more in a $eriod o" $iddling interest rates% 4arlier this week on 5loomberg 'adio! 6enny #an 7eeuwen 8arrington o" income in#esting sho$ &ilman 8ill sset 9anagement illustrated that todays model balanced bond and stock $ort"olio "or retirees $ro#ides a "i"th o" the a"ter-tax income that it did in /::0;so stingy are 1reasury yields% 1his is "orcing her to seek more income "rom equities% *et treating stocks as income-generators comes with a cost% <'ather than #iewing di#idend stocks as a way to ca$ture extra yield! in the $ast we ha#e stressed that di#idend stocks should sim$ly be #iewed as a slightly less risky "orm o" stock in#esting!= 6im 5ianco o" 5ianco 'esearch wrote this week% < s such! we should ex$ect di#idend-$aying stocks to out$er"orm during bear markets and under$er"orm during bull markets%= 8e $oints out that during the growling bear market o" +ctober //! ,00-! to 9arch >! ,00:! di#idend-$aying stocks out$er"ormed the S&P 500 4qual ?eight 2ndex! minus @5%-A $ercent on an annualiBed basis #s% minus A>%/0 $ercent% 5ut during the ensuing bull market o" 9arch >! ,00:! to 9ay ,! ,0//! di#idend-$aying stocks under$er"ormed the S&P 500 4qual ?eight 2ndex! $lus AA%@C $ercent #s% $lus 5>%>A $ercent% 1he long and short o" this analysis) Di#idend stocks seem to be taking on two bond-like characteristics) $ro#iding income and stabiliBing a $ort"olio% 1hey may not be long-term market-beaters! but you already know that trying to beat the market is a losing game%

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