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INVESTMENT INSIGHTS ARCHIVE
Originally posted in March 2014
Synopsis
• Reinvested dividends have been the dominant contributor to long-term total returns on equity securities
• On average, dividends and dividend growth have provided nearly 80% of a stock’s real return beyond 5 years
• Over 101 years such reinvestment in the UK would have produced 108x the wealth generated solely by the same portfolio relying on capital gains
• High dividend yielding stocks have outperformed low yielding stocks across numerous countries
• High dividend yielding stocks are associated with lower overall volatility of returns
• High dividend yielding stocks exhibit lower downside volatility relative to non-dividend yielding stocks
• In declining markets, high dividend yielding strategies have also outperformed other value strategies, as well as the market overall
• Dividends are a ‘bear market protector’: they cushion the fall in the value of a stock during declining markets
• During bear markets, dividend income reinvested at lower stock prices can enhance future returns. Once prices turn higher these reinvested dividends become a ‘total return accelerator’
• Empirical evidence suggests that companies with consistent dividend policies tend to have better total return performance than those without
• Dividends have helped investors in both inflationary and deflationary times
“ Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn’t ... pays it.” Einstein
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