Friday, June 5, 2009

* Equity Returns Are Driven By Reinvested Dividends

It is well-documented that a significant portion of the historical equity returns are a result of reinvested dividends. In Triumph of the Optimists: 101 Years of Global Investment Returns (2002), the authors looked at equity returns from capital gains and dividends from 1900 to 2000. They determined that performance in any given year was driven by capital appreciation, but long-term returns were largely the result of reinvested dividends. Looking at 101 years of data in the U.S. and U.K., they found that a market-oriented portfolio with dividends reinvested would have generated nearly 85 times the wealth of the same portfolio relying solely on capital gains.

Below are some companies helping their shareholders grow their wealth by by increasing their cash dividends:
  • Flowers Foods (FLO) increases quarterly dividend by 17% to $0.175/share, yielding 3.25%
  • Lowe's (LOW) raises quarterly dividend 5.8% to $0.09, yielding 1.79%
  • Cardinal Health (CAH) boosts dividend 25% to $0.70/share annually, yielding 2.30%
One sign of a safe and secure dividend is longevity. For companies with a long string of consecutive dividend increases, see this list.

Full Disclosure: No position in the aforementioned companies. See a list of all my income holdings here.
(Photo Credit)

Tags: [CAH] [FLO] [LOW]