John D. Rockefeller is reputed to have said, “The only thing that gives me pleasure is to see my dividends coming in.” Income investors hopefully lead fuller emotional lives than the richest American who ever lived, but they, like Rockefeller, should understand the long-term power of dividends.
Just have a look at the best stocks of the past half-century. In every case but one – which is a very special case, indeed – dividend income was critical to generating superior returns over the long haul.
S&P Dow Jones Indices recently published a list of the 25 stocks in Standard & Poor’s 500-stock index that generated the best returns over the past 50 years. By price appreciation alone, many of these stocks delivered underwhelming annualized returns.
On a total-return basis (price appreciation plus dividends), however, these stocks blew away the broader market. Over the last 50 years, the S&P 500 generated an annualized return including dividends of 9.5%. That’s peanuts compared to the returns generated by the best stocks of the past half-century.
Have a look at the best stocks of the past 50 years and you’ll see that unless they’re Warren Buffett (hint, hint), long-term investors should probably covet dividends like a Rockefeller.