Tuesday, February 24, 2009

Dividends Critical Component Of Total Return

Historically, dividends have accounted for a large part of the total return for stocks. If dividends are excluded, the capital gain on stocks trails the return on treasury bonds.

(click to enlarge)

asset class returns since 1900
The fastest reduction in U.S. dividends since 1955 is depriving investors of the only thing that gave stocks an advantage over government bonds in the last century.

U.S. equities returned 6 percent a year on average since 1900, inflation-adjusted data compiled by the London Business School and Credit Suisse Group AG show. Take away dividends and the annual gain drops to 1.7 percent, compared with 2.1 percent for long-term Treasury bonds, according to the data.

..."It’s a greater fool theory if we always buy stocks based on earnings and we never get a penny out of it, hoping for someone to buy that stock at a higher price," said James Swanson, chief investment strategist at MFS Investment Management in Boston, which oversees $134 billion. "Dividends have been a cushion in bad times. If they go to zero it’s a disaster."


Dividends Falling Means S&P 500 Is Still Expensive
By: Michael Tsang
February 23, 2009

(HT-The Float)

1 comment :

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