Investors may not realize that recent higher dividendstrends bode well for investment returns. Historically between 40-50% of thereturn investors associate with investing in stocks has come from dividendswith the balance being earned through price appreciation.
Since the technology bubble burst in 2000 return from price appreciation has been disappointingly flat. On the other hand, we feel dividend trends over this 12-year period have been surprisingly positive through several recessions and a major financial crisis.
Traditional beliefs that non-dividend paying growth stocks provide persistently higher returns than dividend-paying stocks may need to be discarded in the face of statistical evidence that contradicts those beliefs. The combination of return from dividends when combined with price appreciation has allowed Dow Jones Industrial Average Index (DJIA) stocks to outperform the NASDAQ Index stocks by more than 2% per year since 2000.
Since 2000 the DJIA companies have increased dividends by an average of 7.07% per year, the S&P 500 Index companies increased by 5.46%, and the NASDAQ Index companies increased by 45.38% on average per year respectively.
The staggering increase in NASDAQ dividends has been driven by a dramatic increase in the number of technology companies that have adopted dividend payout programs. For the first time in history, the technology sector has become the 2nd largest dividend-paying sector in the United States.
Accelerating dividends may be good news for investors as increasing dividends set the stage for higher returns on equities. We believe rising returns from dividends could provide a predictable source of return that pays investors to wait patiently for price appreciation to reaccelerate.
Don Schreiber, Jr., CFP®, CEO/President of WBI Investments, Inc. and co-manager of WBI Funds, manages$1.2 B for advisors and their clients. He is also co-author of All About Dividend Investing (McGraw-Hill, 2nd Ed. 2011). He can be reached through www.wbiinvestments.com
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