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The Impact of Dividends on Your Investments

The Impact of Dividends on Your Investments

August 11, 2022

At Dixon Financial Group, we are passionate about telling the Dividend Story. When considering investing their money, most people only consider growing one dollar into two or more dollars. That's great when your money grows, but you only have the earnings if you sell your investments when they are up in price because, as we know, the stock market can turn tides, and your profits can quickly become losses.

So, what is a dividend?

“A dividend is the distribution of a company's earnings to its shareholders and is determined by the company's board of directors. Dividends are often distributed quarterly and may be paid out as cash or in the form of reinvestment in additional stock.” (Hayes, 2022)

When your investments pay you dividends, you make money when the markets go up or down. See, the amount in dividends you receive from your investment is a function of how many shares you own. So, if the stock market is up or down, you still receive a dividend because a loss in value does not mean you lost shares.

Let's look back on the history of the stock markets and see how dividends impacted the overall return. When we analyze the data over the last 100 years (January 1922 – January 2022), the annualized S&P 500 return WITHOUT dividends reinvested was 6.65%, and annualized return WITH dividends reinvested was 10.77%. (Shiller, 2022)      

What does that mean in dollars?

Let's assume that you invested $1,000 in 1922 and left it alone until 2022; how much would you have if you reinvested your dividends versus not reinvesting them?

  • $1,000 in 1922 with a 6.65% rate of return would be worth:     $     625,296
  • $1,000 in 1922 with a 10.77% rate of return would be worth:   $27,683,154

(Shiller, 2022)

The difference is outlandish, so we love telling the Dividend Story.

As always, if you have any questions, please reach out to our office.  We are here to help.  To help others, please share this blog post.

David S Dixon, CFP®

Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company.

Investing involves risk including loss of principal.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.