“Dividend distributions account for a significant portion of the S&P 500 Index’s total return. According to data from Bloomberg, dividends contributed to over 37% of the total return of the Index over the 96-year period between December 30, 1927, and December 29, 2023.”
– Bob Carey, First Trust
Last month, we conducted our annual review of the equity market over the last 62 years. This month, we examine the often-underappreciated miracle of equity dividend growth.
Great Investors Love Dividends
Save the Date for April 25
We have been publishing our “Great Investors” article series for over 10 years now, and this series has consistently been our most popular content every year. We thank our loyal readers, and we truly appreciate your comments and feedback over the years.
As you know, we have changed the format for our “Great Investors” series from a monthly written commentary to a quarterly webinar format. We will deliver a brief talk, summarizing our outlook on current events, delivered in the same style you have come to appreciate in our monthly article series. We will then have ample time for Q&A and discussion, in order to address any additional questions you may have.
Our next webinar will be held on Thursday, April 25th, and will be available via online live stream, and in person for those who can attend. For those who attend in person, our talk will be followed by a cocktail reception. We will also make a recording available for those who cannot attend at the scheduled time.
Please find the registration link here where you can register to attend or request your copy of the recording.
Bonds Can Never Do This
It is our view at Concentus that dividend growth remains the most underappreciated phenomenon in equity investing, as explained in an excellent recent article by Bob Carey from First Trust.
According to this article, the S&P 500 paid dividends of $70.91 in 2023—up from $59.20 in 2021, and $67.57 in 2022. Bloomberg’s current (end of January) estimate is that dividends will continue to rise to new record levels of $74.54 this year and $79.66 in 2025. Assuming the estimates for 2024 and 2025 prove to be reasonably accurate, these numbers indicate that the S&P 500’s cash dividends will have risen by a rate of 35% over five years.
Millions of words have been written and spoken by investing pundits since the Federal Reserve started raising interest rates, to the effect that CDs and bonds suddenly make great investing sense, because their nominal yields went up. However, to the serious long-term investor seeking real returns after inflation, they never make sense. This is because net of inflation and taxes; their long-term return remains far inferior to that of equities.
In the long run, there’s only one rational long-term investment goal. It isn’t growth. And it isn’t income. It’s growth of income. For that very reason, the growth of the S&P 500’s dividend— soaring as it has since 1980 at very nearly twice the CPI inflation rate—is the Rodney Dangerfield of investing: it gets no respect.
Bob Carey’s article reminds us that, according to Bloomberg, dividends contributed over 37% of the total return of the S&P 500 Index in the 96-year period between December 30, 1927, and December 29, 2023. That number is surely much more important in the lives of investors than whether “the stock market” is up or down this week.
For a couple retiring at age 65 in America today, the odds are good that one of the two spouses will live for 30 years. And during that period of time, none of those couples will bring their brokerage statement to the grocery store with them. They will bring their income. The only way to ensure that your income keeps up with the pace of price increases you are subjected to at checkout is to achieve that income from a source that continues to grow. Historically speaking, equity dividends are the only source of income that can do that, as bonds most certainly cannot.
Helping those you care about
Over the last two years, the faith of all long-term investors has been severely tested. As must happen every few years, we were basically required to do just one big thing: reject the idea that “this time it’s different” and hew to the belief that “this too shall pass.” We must not doubt that we’ll get many additional opportunities to practice patience and discipline in the years to come.
Successful investing, while always fundamentally simple, will never be easy. You may have a family member, colleague, or friend who perhaps did not fare as well during the 2022-23 bear market and who you feel might have benefited from the sort of advice you were receiving. Should that be the case, we would certainly appreciate your introducing us to them. We very much enjoy working with you and would welcome the opportunity to offer the same level of planning and service to people whom you care about.
You are more than welcome to bring a friend or family member to our event on April 25th or to share the recording of our discussion that night.