Dow Jones Industrials 32,801.51 -0.13%, S&P 500 4.145.05% +0.36%
Nasdaq Composite 12,657.55 +2.15%, US Ten Year 2.842
West Texas Intermediate $88.38
Columbia Threadneedle Investments, a division of Ameriprise Financial, recently published their five-year forecast for the securities markets. Equities of all classes are expected to continue their long-standing outperformance relative to fixed-income investments. The notes to this chart include the following:
“Equity forecasts are based on three components: expected dividend payments, expected earnings growth, and change in valuation levels (price-to-earnings ratios). Expected earnings growth is driven by expected economic growth, input cost changes and pricing power.”
The total return of a stock investment comes in three forms: dividends, dividend growth (a function of earnings growth), and increase in valuation. I want to emphasize the importance of dividends, which investors often overlook with their focus on the market indexes. As the chart below illustrates, since 1990 dividends have produced about half of the total return of the S&P 500.
The GROWTH of dividends is equally as important. Over the last decade they have grown at a compound annual growth rate of 8.6%.
None of this is to imply that an investor should eliminate their non-dividend paying (Amazon, Alphabet) or low dividend paying (Apple, Costco, Microsoft) stocks. But owning a subset of dividend-paying stocks of companies with history of raising their dividends will, in even the most aggressively growth-oriented equity portfolio, not only contribute to total return, but provide a cushion during periods of generally falling stock prices.
CONFIDENTIAL AND GENERAL NOTICE:
All information herein has been prepared solely for information purposes, and it is not an offer to buy or sell, or a solicitation of an offer to buy or sell any security or instrument or to participate in any particular trading strategy.
The view and opinions expressed in this message and any attachments are the author’s own and may not reflect the views and opinions of M&R Capital Management, Inc.