Dividends & Secular Bull and Bear Markets
If your investment horizon is a lifetime, mine is so far, you, as I have, will experience a secular market. Huh?
Secular: As in “relating to a long term of indefinite duration.” *
We’ve all experienced the most recent secular Bear Market birthing sometime in 2000 and ending approximately 11 years later around 2012 when stock prices exceeded the previous stock market high early in 2000.
Had you invested in an index fund mirroring the S&P 500 in the year 2000 the implication is after 11 years invested your return would be about zero. That’s probably about right.
Unless, that is, you take into account the magic of dividends. Throughout thick and thin, Bull or Bear, the disaster du jour, or the latest cryptocurrency fad, stockholders received their dividend checks. How about that? And, it looks from the graph that they have, more often than not, received increases in their dividends year over year over the last, are you ready, 119 years.
As it turns out, the dividend growth compound rate of return for those 119 years is about 4% per year. The Inflation rate in the U.S. since 1913 has been about 3%; so for the last 105 years (that is as far back as we have inflation data for), the growth rate of the dividend stream has been about 4% handily providing a premium over the inflation rate over that time.
If you are considering retirement isn’t it nice to know that there are means by which to not only retain your purchasing power but over time also increase it?
And if you are starting out as an investor isn’t it nice to know that an increasing dividend stream can purchase additional shares potentially adding to the compounding of the nest egg over time?
Great companies are operating globally, providing products and services in every conceivable market and circumstance and by a simple act of ownership we, as investors get the benefit of a payout through thick and thin.
Aren’t dividend paying stocks great for any season, Bull or Bear, secular or not?
Our portfolios and strategies reflect overweighted positions in US and International Equities.
Carlos Dominguez, CFP® – Portfolio Manager
Chart Sources: The S&P Indices and S&P Global Co. – Earnings, actual and estimated as well as S&P historical prices. The Federal Reserve Bank of St. Louis for Interest rate data.
Sources are being provided for information purposes only. Raymond James is not affiliated with and does not, authorize, or sponsor any of the listed sources. Raymond James is not responsible for the content of any source or the collection or use of information regarding any source’s users and/or members. Past performance may not be indicative of future results. The S&P 500 is an unmanaged index of 500 widely held stocks that is considered representative of the U.S. stock Market. Inclusion of these indexes is for illustrative purposes only. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary. Any opinions are those of Carlos Dominguez and not necessarily those of Raymond James. This material is being provided for information purposes only and is not a complete description, nor recommendation. The information has been obtained from sources considered reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Dividends are not guaranteed and must be authorized by the company’s board of directors. There is no guarantee that any statements, opinions or forecasts provided herein will prove to be correct.