Dividends make up 43% of S&P 500 historical returns

There are a lot of die hard dividend investors out there. Many won’t even look at a stock if it doesn’t pay dividends.

There are various reasons as to why this strategy is appealing. Companies that pay dividends are often larger and more stable than non dividend paying companies. If a dividend paying stock’s price gets beaten up, the dividend yield increases making the stock more attractive which means there is a bit of a brake on the price falling. For example if company XYZ is $100 per share and pays annual dividends of $4, it has a 4% dividend yield. If the market tumbles and XYZ is now trading at $50 per share, so long as they maintain their dividend payments, the yield is now 8% ($4 dividends / $50 share price). Many investors would initiate or add to positions in XYZ if they believed the dividend was safe. This extra buying interest can help buoy the stock’s price compared to stocks that don’t pay dividends.

In any case, there are plenty of websites dedicated to dividend based investing. If you want opinions on dividend stocks, there is no shortage.

Instead, here’s a chart that will be sure to be popular with dividend investors and bloggers. It shows the breakdown of S&P 500 Total Returns by decade (including the first four years in the 1920’s) of dividends versus capital appreciation. I circled the last bar on the chart which indicates that capital appreciation accounted for an annualized return of 5.5% between 1926 and 2009. Dividends, however, accounted for 4.1%. Thanks to JP Morgan Asset Management for the chart.

(Click on the chart for a larger version.)

Source: Standard & Poor’s, Ibbotson, J.P. Morgan Asset Management.


Preet Banerjee
Preet Banerjee
...is an independent consultant to the financial services industry and a personal finance commentator. You can learn more about Preet at his personal website and you can click here to follow him on Twitter.
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Showing 11 comments
  • Joel G

    Does the fact that the annualized return of dividends has been steadily declining for the past 3 decades scare you at all? 4.4%, 2.5% and 1.8%.

    I am a newbie and just getting started on attempting to manage my own portfolio (seems like a mistake so far based on my 2011 losses). After a rough year last year I am starting to think focusing solely on dividend stocks is a better path for me. After looking at that chart though I am not so certain about the future of passive portfolios, any advice?

    • Preet

      Hi Joel, the decline doesn’t scare me as there are lots of healthy dividend payers out there. An overall decline might be a sign of more companies in general assuming they can effectively reinvest the cash better than investors – but sometimes they spend it buying companies they shouldn’t.

      My only advice is that you should know that a one year review of any strategy can underperform the markets, so if you have your heart set on actively managing your portfolio you might be susceptible to making changes at the wrong time if a one year review is making you rethink your style. There is no style that will consistently beat the markets every year.

  • My Own Advisor

    Hi Preet,

    Dividend investor here, smiling :)

    Dividend-paying stocks aren’t the be-all, end-all, but the income and dividend increases are pretty sweet, especially in my TFSA :)

    Thanks for sharing this data.


    • Preet

      No problemo my friend!

  • Kanwal Sarai @ Simply Investing

    Another dividend investor here! Thanks for posting this Preet.

    Dividends are also a great safety net from poor management. It is difficult for investors like you and me to know when a CEO of CFO might be lying or if the statements have been altered. However once a dividend has been paid it can not be taken back. Here’s great personal example, I purchased TRP in 2000 and since then I’ve received enough dividends to equal my initial investment. My investment in TRP has been completely paid off! Gotta love dividends!!

    • Preet

      I knew this chart would bring out the dividend fans. ;)

  • Ken Faulkenbery

    Dividends are more important than ever in an environment of near zero percent short term interest rates. Dividend stocks are a bargain compared to bonds which are expensive now.

  • 101centavos

    Hard to beat re-invested dividends. We can only hope that a stock market water fall happens a couple weeks before ex-dividend dates. Nice chart!

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