The Power of Dividends

We love being paid to own!

It is great to see that global dividends reached a first-quarter record of $263.3 billion.  That is a 7.8% rise all in the face of concerns of slowing economic growth.  The Janus Henderson Global Dividend Index said that U.S. dividends totaled a record $122.5 billion during the period, up 8.3%. Close to 90% of American companies featured in the index raised dividends. 

We are big believers in the power of dividends in one’s portfolio.  When comparing various asset classes over the past two-hundred years, stocks have outperformed everything.  Whether it be bonds, commodities like oil or gold or currencies; stocks win out over the long-haul.  Professor Jeremy Siegel from the Wharton School at the University of Pennsylvania has calculated that the long-run return on stocks is between 6.5% and 7% a year after inflation.  Stocks are an excellent hedge against inflation that keeps up purchasing power.

What most investors fail to realize is the bulk of stock market returns can be attributed to dividends and dividend growth and the power of compounding.  Siegel has analyzed the S&P 500 index since its inception and the results make the continued case for dividend paying stocks.  Stocks that pay higher dividends have given investors higher returns with lower risk than the low and non-dividend-paying stocks.  The bottom line is that in the long-run dividend-paying stocks give investors a much better risk/return trade-off. 

Smith Elliot US Breaks All-Time Record For Dividends as Investor Payouts Surge CNBC 5/20/19