Why Dividends Matter

  • Before we get into finding good dividend paying investments, it is important to understand why we are looking so closely at dividend stocks. The following pieces of data explain why I invest in them – if this is not enough for you then please scour the web or go to the library and read as much as you can. Before you decide to invest with dividend in mind, you must be sure to fully understand why.

  • The June 7th, 2003 issue of Forbes said it best when they stated, “Dividends have accounted for well over half of the long-term real return on big company stocks.”
  • The table presented below helps to highlight why dividends matter – stocks with a high dividend yield have managed to beat the S&P 500 stock market index by 2.3% over a 10 year period, 1.8% over a 20 year period, and 3.2% over a 33 year period.

    • Why Dividends Matter

  • Not convinced, then take a look at this chart and consider that since 1926 (when reliable data were first available), dividends have accounted for 35% of stocks’ total return. When you factor in the power of compounding, dividends can contribute impressively to the buildup of your nest egg. Consider this scenario: A dollar invested in 1926 in U.S. large-cap stocks would have grown to nearly $2,300 today (display below). But take out the dividends (and the effect of compounding on those reinvested dividends) and that same dollar would be worth a little less than $88.

    Why Dividends Matter






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