… is making sure you get paid.
When you buy shares in a company, you want to make money.
However, there is no guarantee that the shares will rise in price. Indeed, if you are investing simply because you believe prices will rise, you are essentially betting that someone else will want to pay more for your shares at a later date.
No matter how much research you perform, there is no guarantee this will happen.
Dividends, however, DO make sure you make money. Because the company is actually paying you to own shares. And this makes a heck of a difference.
If you had invested $1 in stocks in 1950 and held onto your position until 2010, you would have made EIGHT TIMES more money through dividends than share appreciation.
Let me restate that: by receiving and reinvesting dividends you’d make 800% more money than without them between 1950 and 2010.
The difference is even more incredible if you go back further.
Historically dividends have accounted for 70% of all stock market gains.
According to a study performed by the London Business School, when you remove dividends, stocks have returned a mere 1.7% in average annual gains over the last 109 years. To put this into perspective, this is less than you’d make from owning long-term US Treasury bonds (2.1%) over the same time period.
Indeed, if you’d invested $1 in stocks in 1900 and reinvested your dividends, by 2009, you’d have made $582 (adjusted for inflation). Take out dividends and you’d have only seen $6 from price appreciation. Yes, $6 from 109 years’ worth of capital gains.
Put another way, by focusing solely on capital gains when it comes to stock investing you’re only doubling your money about every 18 years (remember, this analysis simply focuses on the returns generated by the market… which outperforms most professional and individual investors).
So unless you’re buying stocks with dividends, you’re likely not making diddly in the long-term.
Again, if you’re going to buy stocks… make sure you get PAID. And there’s no better way to do this than with dividends.
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Buck Wilson
