The Dividend Key

In yesterday’s post on The Dividend Key, the importance and value of reinvested dividends was presented. Today, I am going to present the findings of a study by Robert D. Arnott that broke down investment returns into their individual components. The study looked at three sources of returns for investors:

1. Inflation – the amount a stock grows just through inflationary trends
2. Valuation expansion – the company becomes more valuable and therefore so does the stock price
3. Dividends – the yield received when a stock is purchased
4. Real Dividend Growth – the increase in dividends a company may provide year after year

The study pulled a crazy amount of data going back to 1802 and found that the total annualized return for this period (1802 – 2002) was 7.9%. The interesting part was what made up this return. The graphic below highlights the findings and shows that a total of 5.8% of that return comes from dividends (5% from dividends + 0.8% from real dividend growth):

Investment ReturnsClick to Enlarge

Put another way, 73% of the growth in U.S. equities going back 200 years have come from dividends. That is in the form of pure dividends and AND a company raising its dividends. This is very powerful stuff we are dealing with here.

Source: Tweedy Browne Company LLC (link opens a .pdf document)

(Photo Credit: daniel wildman)

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January 1, 2008, 10:10 am

That is some impressive information. Thanks for sharing it!

Best Wishes,

Dividends RULE
January 7, 2008, 12:47 am

Dividend Guy- I think your next analysis should be TD Bank and Scotiabank. Would be interested to see those ones. Thanks.

November 22, 2008, 8:09 pm

I’m just getting into 2 new investment vehicles – dividends and gold. I’ll be watching your blog for insights!

February 10, 2010, 5:01 am

[...] investing. It is something that I seek out very actively – a large portion of a stock’s growth in value comes from [...]

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