Reinvested dividends actually make up almost the entire total return in the long run. This Barron's article points out:
Since 1929, $ 100 invested in the S&P 500 would be worth $117,774. Out of that $117,774 only $4,989, or 4.2%, came from capital appreciation. That means 95.8% of the total return was dividends and the reinvestment of those dividends.
Here's a more recent example.
Today, Coca-Cola pays $ 1.76/share in dividends...roughly half what it earns. 25 years ago it was selling at ~$ 2.90/share. What probably looked like a modest dividend back in 1985 has grown to what is now a roughly 60% annualized dividend on the $ 2.90/share an investor paid back then. So every two years the rate of cash dividends being received by a 1985 buy-and-hold investor exceeds the amount originally paid for the stock.
Since 1929, $ 100 invested in the S&P 500 would be worth $117,774. Out of that $117,774 only $4,989, or 4.2%, came from capital appreciation. That means 95.8% of the total return was dividends and the reinvestment of those dividends.
Here's a more recent example.
Today, Coca-Cola pays $ 1.76/share in dividends...roughly half what it earns. 25 years ago it was selling at ~$ 2.90/share. What probably looked like a modest dividend back in 1985 has grown to what is now a roughly 60% annualized dividend on the $ 2.90/share an investor paid back then. So every two years the rate of cash dividends being received by a 1985 buy-and-hold investor exceeds the amount originally paid for the stock.
That dividend, of course, should continue to grow.
If those future dividends are reinvested, 25 years from now that original $ 2.90/share price paid is likely to seem like a small fraction of an afterthought.
Adam
This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: The opinions found here should never be considered specific individualized investment advice and never a recommendation to buy or sell anything.
Adam
This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: The opinions found here should never be considered specific individualized investment advice and never a recommendation to buy or sell anything.
