Show Me the Dividends
Dividends always have been a primary part of the investment philosophy of Peachtree Investment Partners. But in markets such as we are currently experiencing -- where stocks go wildly up and down but end up essentially flat -- dividends take on particular importance.
Since 1929, reinvested dividends have made up about half the market’s total returns. They represent returns to your portfolio and income you do not get anywhere else. In this market, they might be the only significant returns you get.
This year's stock market seems to be spending a lot of time moving without actually going anywhere. Despite significant volatility, the market is flat for the year. The Standard & Poor's 500 closed at 2058.90 on Dec. 31, 2014 and at 2067.89 on March 31, 2015. The Dow Jones Industrial Average ended 2014 at 17,823.07 and closed on March 31 at 17,776.12.
Dividends have been a different story. During the first quarter, while the S&P increased about 0.4%, S&P dividends increased 31.1% over the previous quarter, to an average $43.16; the increase was 14.8% year to year, at a seasonally adjusted rate.
Obviously not all dividends were up 31.1% for the quarter. But not all stocks were up 0.4% either. In the case of individual dividends and stocks, some increases were lower than the average, and some were higher.
In addition, stock prices are influenced by market conditions, but they also are influenced by investor behavior, which can be irrational at times. On the other hand, dividend payouts are almost entirely determined by company management. Once a company declares a dividend, it is required by law to pay it.
We also believe that the ability to pay dividends consistently over time is a sign that a company is well-managed and well-capitalized. And we believe that well-managed, well-capitalized companies that have a good return on investment are the kinds of companies that should make up a portfolio designed to be successful in the long run.
The reasons for the current market skittishness are many, including concern about when the Fed will start raising rates, geopolitical unrest, financial difficulties both at home and abroad, and stagnant corporate earnings so far this year.
We do remain optimistic that, long term, the markets are sound. But we also believe that in uncertain times such as these, dividends become an even more important part of an investment portfolio. Dividends give you returns regardless of the day-to-day performance of the market. If you have a diversified dividend portfolio, you should see dividends coming into your portfolio on a regular basis. This is income for your portfolio -- and ultimately for you.
We don’t know where stock prices will be a month or a year or 10 years from now. But we believe that dividends should be a vital part of your financial plan, no matter what happens.
Garry K. Schaefer
Atlanta, Georgia
April 14, 2015
