Reinvesting Dividends

As of early 2012, Con Ed had single-digit sales growth and its common stock had 1/5th the volatility of the U.S. stock market. Over the past decade, Con Ed’s stock price only slightly outperformed inflation. However, with dividends reinvested, shares returned 128%, vs. a total return of 33% for the S&P 500. Co Ed has increased its dividend for 37 consecutive years. Over the past decade (2002-2011), Chevron returned almost 200% with dividends reinvested; Altria Group returned more than 300%.

 

Over the eight decades ending September 2010, dividends represented 44% of S&P 500 total returns. During the 1970s, when stock returns averaged just 5.9% a year, dividends contributed 71% of that figure. Advisors can find companies with slow, steady growth and rising dividends by reviewing S&P’s Dividends Aristocrats list. The list is comprised of S&P 500 stocks whose dividend payments have increased for at least 25 years in a row. There are 42 such companies; and 15 of them pay at least a 3% dividend (e.g., J&J, Emerson Electric, Pepsico and P&G). ETF advisors should consider PowerShares Dividend Achievers Portfolio and Vanguard High Dividend Yield.