This is an excerpt from the great Dow Theorist Richard Russell. I hope you find this instructive on the power of dividends. Enjoy.
Steve Leuthhold and his group turn out some of the best research obtainable (612-332-1567). In his latest report, Steve notes that the annual compound growth of stocks, with dividends reinvested, is 10.8%. But excluding dividends, the long-term total return drops to 5.9%. Thus, 45% of the annual total return over the last 100 years has come from dividends and the reinvestment of those dividends.
Then Steve notes that the “difference between 5.9% compounded over 100 years and 10.8% compounded is GIGANTIC.” This sounds incredible, but here’s the difference: $1,000 invested at 5.9% in 1900 grew to $319,694. But $1,000 invested at 10.8% grew to $29,471,614.
Dividends don’t matter? Don’t tell that to someone who understands compounding. Market action plays a large part in how and when companies pay dividends. When stocks are going up and producing capital gains, it is said that companies don’t have to pay dividends because corporations, in their wisdom, can make better use of the money than simply paying it out in taxable dividends. But when times are hard and stocks are down, it is said that dividends are valuable because even if your stock is declining or going nowhere, the dividend is something tangible, the dividend is income, and in hard times income is extremely important and in many cases “a life saver.”
Leuthhold notes that in 1978 the S&P [500] was priced at less than 10 times earnings while providing a yield of better than 6%. Investors in 1978 were still traumatized by the 1973-74 bear market collapse, and they wanted value and the wanted a return on their investments. In 1978 66.5% of the stocks on the NYSE (New York Stock Exchange), the Amex and the Nasdaq paid dividends. In 1998, however, only 20.7% of stocks on those exchanges paid dividends.
Today the percentage has dropped below 20%, largely because the great majority of IPOs and new issues pay no dividends. And as Steve Leuthhold says, “How can they pay dividends? Then don’t have any earnings.”
Russell, Richard. Dow Theory Letters. "Dividends and Total Return." September 27, 2000. p.5. http://www.dowtheoryletters.com
Steve Leuthhold and his group turn out some of the best research obtainable (612-332-1567). In his latest report, Steve notes that the annual compound growth of stocks, with dividends reinvested, is 10.8%. But excluding dividends, the long-term total return drops to 5.9%. Thus, 45% of the annual total return over the last 100 years has come from dividends and the reinvestment of those dividends.
Then Steve notes that the “difference between 5.9% compounded over 100 years and 10.8% compounded is GIGANTIC.” This sounds incredible, but here’s the difference: $1,000 invested at 5.9% in 1900 grew to $319,694. But $1,000 invested at 10.8% grew to $29,471,614.
Dividends don’t matter? Don’t tell that to someone who understands compounding. Market action plays a large part in how and when companies pay dividends. When stocks are going up and producing capital gains, it is said that companies don’t have to pay dividends because corporations, in their wisdom, can make better use of the money than simply paying it out in taxable dividends. But when times are hard and stocks are down, it is said that dividends are valuable because even if your stock is declining or going nowhere, the dividend is something tangible, the dividend is income, and in hard times income is extremely important and in many cases “a life saver.”
Leuthhold notes that in 1978 the S&P [500] was priced at less than 10 times earnings while providing a yield of better than 6%. Investors in 1978 were still traumatized by the 1973-74 bear market collapse, and they wanted value and the wanted a return on their investments. In 1978 66.5% of the stocks on the NYSE (New York Stock Exchange), the Amex and the Nasdaq paid dividends. In 1998, however, only 20.7% of stocks on those exchanges paid dividends.
Today the percentage has dropped below 20%, largely because the great majority of IPOs and new issues pay no dividends. And as Steve Leuthhold says, “How can they pay dividends? Then don’t have any earnings.”
Russell, Richard. Dow Theory Letters. "Dividends and Total Return." September 27, 2000. p.5. http://www.dowtheoryletters.com
