Dividends Consistently Contribute – “Susan On Money” for May 27, 2015

by | May 27, 2015 | Blog, Blog1

Hi Everyone,It seems as though I write about dividends and their quoted yields once or twice per year. It’s worth doing again this week.

 

Here’s why,

Susan

 

Stock DividendsThe dividend yield of a stock, as currently quoted, is a function of share price. You may have purchased a stock with a 4% dividend and a $30 price but as the price rose to $33, the yield fell to 3.64%.

Should it concern you? Probably not.

As stock prices rise, it’s important to remember the importance of dividend contributions to total return.

 
Total Return   “While some may be less enthused about yields on stocks these days, we can’t forget that dividends and their reinvestment have long been a substantial contributor to total return on equities.

Morningstar’s Ibbotson Associates calculated that from 1927 through the end of 2012, the income component amounted to 42% of large-cap stock returns, 36% of mid-cap stock returns and 31% of small-cap stock returns.” ~Jeff Buckingham, AAII Contributor

 

Fama and FrenchProfessors Eugene Fama and Kenneth French analyzed data from 6/30/1927 through 12/31/2014 and found that dividend payers have out-performed those with no dividend contribution over the long-term and with less volatility.

You can read more on Fama French at:

http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html

So, remember that yields go up and down with share price and they still make important contributions.

 

 

Let me know if you have any questions or need any additional resources and remember that nothing above is intended to be a specific investment recommendation. Check with your advisor before investing.Until next week,

Susan R. Linkous

The Linkous Group, Ltd.

A Registered Investment Advisor