Dividends account for about 40% of total stock market return over time
Value of dividends
There are 2 ways to make money in the stock market: capital appreciation and dividends.
Capital appreciation—an increase in a stock’s price—gets most of the attention, but dividends can be surprisingly powerful.
Fidelity Investments’ research finds that dividend payments have accounted for approximately 40% of the overall stock market’s return since 1930.
What’s more, dividends can help prop up returns when stock prices struggle. For example, stock prices in the S&P 500 fell during the 1930s and 2000s, but dividends almost completely offset the decline. In the 1940s and 1970s, when inflation surged, dividends accounted for 65% and 71% of the S&P 500’s return, respectively.
“From a multi-asset income perspective, I am always seeking investments that pay a high enough level of current income to help cushion the blow during down markets. Conversely, in rising markets, this income component contributes to the overall total return of the investment. In this regard, companies that pay a sustainable and growing dividend have the potential to grow their income to keep up with inflation,” says Adam Kramer, portfolio manager for the Fidelity Multi-Asset Income Fund
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