Historical Dividend Studies

[Be Here Now]

I have found a number of published studies that illustrate the importance of dividends to investment total return. The first link below is I think the most persuasive, but they all support the theory that dividends play a major role in total return, contrary to the assertions made on behalf of MPT by such proponents as Larry Swedroe.

http://www.heartlandfunds.com/media/View...eturns.pdf

https://server.capgroup.com/capgroup/act...r-2012.pdf

http://www.advisorperspectives.com/newsl...idends.pdf

http://www.pimboston.com/wp-content/uplo...idends.pdf

[cannew]

When I review many of those types of articles they speak "In General Terms" about dividends. It's not that I disagree with them, but often the information is not useful to the individual investor. However, there are specific comments which are meaningful and which apply to what we do, such as:

"In general, companies that grow their dividends over
time are believed to be more efficient allocators of
capital over longer periods. Steadily growing dividends
can also be seen as a form of earnings transparency —
they require the disciplined use of capital. Once a
dividend is initiated, companies are often under pressure
to maintain that payment and increase it over time."

They also provide a growing return to the investor! As a DG investors those are the companies we should buy and ignore all others (my approach to investing).

[Kerim]

I've said it before -- I don't think the total return people are wrong in theory, but I think that investing style is orders of magnitude more difficult to execute successfully than dividend growth investing. Either approach can get you where you want to go, but I need to use the one that I can actually execute successfully.

[Robandcindy2]

Perspective is everything. I recently found this wonderful site to compare reinvested dividends vs. taking those dividends as cash.

In both cases I went back to College Graduation/Commissioning as a USAF 2Lt. (May 1979 through Feb 2014)

Investing in the S&P 500:
(Results are adjusted for Inflation/CPI)

Total S&P 500 Price return
445.659%
Annualized Price Return
5.004%
S&P 500 Return (Dividends Reinvested)
1314.517%
Annualized Return (Dividends Reinvested)
7.922%

S & P 500 Dividend Reinvestment

The Wilshire 5000 shows similar results:
(Results are adjusted for Inflation/CPI)

Total Return without reinvested dividends
508.306%
Annualized Return
5.329%
Total Return Dividends Reinvested
1406.710%
Annualized Return
8.112%

Wilshire 5000 Dividend Reinvestment

Graph of the Wilshire 5000 1970-Present
"With both data points scaled to zero for December of 1970 (where the data begins), you can see the return that would have been ignored had we thrown out the dividends:" (http://dqydj.net/wilshire-5000-dividend-...alculator/)

[Dividend Watcher]

Holy Crapola, Rob. Looks more impressive when you put it graphically.

ETA: nice seeing you posting here again.

[cannew]

When speaking of Index's remember that they include the whole bundle of stocks, not just dividend payers. Consider what the chart would look like if you excluded non-dividend payers, low yield stocks and those that don't have a history of growing their dividends.

[hendi_alex]

You would also exclude lots of explosive growth stocks, so leaving off the non dividend payers may not give the result that a dividend investor might imagine.

[dividendventure]

This matter is one of the things I still didn't fully settle on. What would be a better strategy on average: Start investing early on dividend stocks or invest in index funds and later on move the capital to dividend payment stocks?

Essentially, in the accumulation phase where you re-invest all the dividends, there is no actual income. So, all that matters is the capital growth you achieve. So, won't an index fund grow more per year than the average dividend stock (even including dividend re-investment) ?

I can't seem to find a concrete answer to this question, which might mean there isn't one and depending on the time frame or on the dividend stocks picked, the results can swing either way.

[hendi_alex]

As expected, most everyone here focuses on dividend growth. I'm thinking that earnings growth is a more relevant metric if interested in gaining maximum total return. I would also assume that smaller cap growth stocks would tend to out perform in that regard. But those are just intuitive observations with no research to verify their accuracy.

[Kerim]

(03-07-2014, 01:26 PM)dividendventure Wrote: So, won't an index fund grow more per year than the average dividend stock (even including dividend re-investment)?

That really is the big question, and I think that you are right that there is not a clear-cut answer. As you hinted, depends on time frames, sectors, and whether income is important to you (either to spend or reinvest).

(03-07-2014, 01:41 PM)hendi_alex Wrote: I would also assume that smaller cap growth stocks would tend to out perform in that regard.

I think I recall reading that over the long haul small-cap indexes have outperformed broader indexes by a little bit. But that is not the same as individual stock-picking. I'd be wary of trying to predict small-cap winners and would probably stick with indexing there, for the most part.

[hendi_alex]

I agree, however small cap is not what most of us think of. A small cap index fund generally invests in companies with market cap of between a few hundred million up to 2 billion dollars. These are all companies with well established track records, though wome will have only recently gone public. Lots of us probably hold individual tickers of companies in that size range, and we don't consider them to be particularly high risk investments.

[dividendventure]

(03-07-2014, 03:07 PM)Kerim Wrote:

(03-07-2014, 01:26 PM)dividendventure Wrote: So, won't an index fund grow more per year than the average dividend stock (even including dividend re-investment)?

That really is the big question, and I think that you are right that there is not a clear-cut answer. As you hinted, depends on time frames, sectors, and whether income is important to you (either to spend or reinvest).

(03-07-2014, 01:41 PM)hendi_alex Wrote: I would also assume that smaller cap growth stocks would tend to out perform in that regard.

I think I recall reading that over the long haul small-cap indexes have outperformed broader indexes by a little bit. But that is not the same as individual stock-picking. I'd be wary of trying to predict small-cap winners and would probably stick with indexing there, for the most part.

(03-07-2014, 04:50 PM)hendi_alex Wrote: I agree, however small cap is not what most of us think of. A small cap index fund generally invests in companies with market cap of between a few hundred million up to 2 billion dollars. These are all companies with well established track records, though wome will have only recently gone public. Lots of us probably hold individual tickers of companies in that size range, and we don't consider them to be particularly high risk investments.

This is very true, it is part of the reason why I always try to look for small-cap (Between 1 and 2 Billion market cap) that have a good balance sheet, earnings growth and consistent dividend payments and increases around 10 years. Of course these companies are very hard to find, as they have such a potential upside. Since I am based in London, UK stocks are fair game for me, so I've been able to find bargains there. Looking at US listed stocks, I can't seem to find such good small-caps.