The Affect of Dividends on Market Returns

Greetings! I trust that this finds you well and enjoying life.

Last week I wrote about stock dividends as an option for retirement income. This week let’s talk about the affect dividends have on market returns. Take the S&P index for example. How important are dividends in the S&P 500’s total returns? In a word, very. Dividend income has represented roughly one-third of the total return on the Standard & Poor’s 500 index since 1926.
According to S&P, the portion of total return attributable to dividends has ranged from a high of 53% during the 1940s–in other words, more than half that decade’s return resulted from dividends–to a low of 14% during the 1990s, when the development and rapid expansion of the Internet meant that investors tended to focus on growth.

And in individual years, the contribution of dividends can be even more dramatic. In 2011, the index’s 2.11% average dividend component represented 100% of its total return, since the index’s value actually fell by three-hundredths of a point. And according to S&P, the dividend component of the total return on the S&P 500 has been far more stable than price changes, which can be affected by speculation and fickle market sentiment.

Dividends also represent a growing percentage of Americans’ personal incomes. That’s been especially true in recent years as low interest rates have made fixed-income investments less useful as a way to help pay the bills. In 2012, dividends represented 5.64% of per capita personal income; 20 years earlier, that figure was only 3.51%.

If you have any questions about the above or any retirement related issues call us.

Best regards,

Jeff Christian CFP, CRPC

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