The Importance of Dividends – Updated

By: Russ Kamp, Managing Director, Ryan ALM, Inc.

We’ve shared with you on a couple of occasions the output from a report published by Guinness Asset Management. In our February 23, 2022 blog on this subject, we highlighted the fact that Guinness calculated the portion of the S&P 500’s return through time that came from dividends and dividends reinvested. That Guinness report was through December 31, 2011. Given the growth within the S&P 500 of non or low-paying companies (technology stocks), we wondered if the magnitude of the contribution to the S&P 500’s return from dividends had contracted. Good news: it hasn’t!

According to the Guinness study, which has been updated as of April 2020, the contribution to return of the S&P 500 from dividends and dividends reinvested for 10-year periods since 1940 was a robust 47% down insignificantly from 48% a decade ago. Extending the measurement period to 20 years from 1940 forward highlights an incredible 57% contribution to the total return of the S&P 500 from dividends. In the previous review, 20-year periods had revealed a 60% contribution to return. Furthermore, this study is on the entirety of the S&P 500, not just those companies that pay dividends. If the universe only included dividend payers this analysis would reveal strikingly greater contributions given the fact that as of March 31, 2022, there are currently 108 companies within the S&P 500, including GM, Disney, Amazon, Facebook, and Boeing that aren’t paying a dividend.

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