The power of dividends
Pairing dividends and fixed income together.
Stocks and bonds have historically had an inverse relationship, making some combination of these asset classes the cornerstone of many diversified portfolios. We believe the use of dividend-growth stocks improves the complementary relationship between equities and fixed income investments, allowing us to build portfolios more consistent with our clients’ objectives and risk tolerance.
Source: Ned Davis Research. S&P Capital IQ Compustat, Bloomberg Barclays Indices, S&P Dow Jones Indices. The Risk-Reward Relationship of Equities & Fixed Income chart is a graphical depiction of the mean-variance analysis, which is a process of weighting risk (variance) against expected return. Mean-variance analysis is a component of Modern Portfolio Theory and uses a mathematical framework to assemble portfolios of different assets to maximize the expected return for a given level of risk (measured by standard deviation). The assets used to construct this chart consist of the S&P 500® Total Return Index, the S&P 500 Total Return Index Dividend Growers group (a subset of the S&P 500 Total Return Index that only includes dividend growers or initiators), and the Bloomberg Barclays U.S. Intermediate Gov/Credit Index. Please see additional explanatory notes and disclosures at the Disclosures link for more information. Past performance does not guarantee future results.
We see fixed income as a risk balancer.
Within fixed income, we seek to deliver reliable yields that appropriately compensate investors for the risks taken on their behalf, while also seeking to dampen overall portfolio volatility. We seek to accomplish this with careful analysis of the major fixed income sectors and opportunistic purchases of fixed income investments with yield characteristics that we believe fairly compensate investors for the risks to which they are exposed.
Dividends are positive performers.
Unlike price appreciation, which can go negative, dividends are always a positive contributor to total returns.
Since 1926, the S&P 500 has averaged annualized returns of about 10%, with dividends accounting for approximately 40% of the total return. The contribution of dividends to total returns, each decade and over the entire time period, is illustrated by the light blue portion of each column. The contribution of price appreciation is represented by the dark blue portion of each column.
Source: 2019 Stocks, Bonds, Bills & Inflation® (SBBI®) Yearbook (1926-2018); Bloomberg (2019-2022). The S&P 500® Total Return Index assumes reinvestment of dividends, includes capital gains, and does not reflect the effect of taxes and fees. Indexes are unmanaged and not available for direct investment. Please see additional disclosures below. Past performance does not guarantee future results.
Dividends build wealth over time.
The ability to reinvest dividends has a significant impact on an investor’s ability to create wealth in the stock market.
For example, if an investor had purchased one theoretical share of the S&P 500 Index on December 31, 1982, it would have cost them about $141. Forty years later, on December 31, 2022, that one share of the S&P 500 would have appreciated to nearly $3,840. If the investor had been able to reinvest dividends in the index, their investment would have grown to over $9,972.
Source: 2019 Stocks, Bonds, Bills & Inflation® (SBBI®) Yearbook (1982–2018); Bloomberg (2019–2022). Growth of the S&P 500 Total Return Index assumes reinvestment of dividends, includes capital gains, and does not reflect the effect of taxes and fees. Indexes are unmanaged and not available for direct investment. Past performance does not guarantee future results.
Dividends need to be growers.
Companies that increase their dividends have historically performed better than companies that do not. ThomasPartners Strategies seeks to select companies that have exhibited the ability and willingness to grow their dividends over time, as these companies are consistent with the objectives of ThomasPartners Strategies.
Source: Ned Davis Research. S&P Capital IQ Compustat. S&P Dow Jones Indices. Copyright 2023 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at www.ndr.com/copyright.html. For data vendor disclaimers, refer to www.ndr.com/vendorinfo/. Starting in Q1 2019, this chart has been updated to reflect a new data source and independent calculation methodology by a third party. As such, the composition of the four categories is different than in prior quarters and has affected the trend in returns from prior quarters. The "Dividend Growers" and "Non-Payers" groups' returns are now generally lower than under the previous calculation methodology. The "No Change" and "Dividend Cutters" groups' returns are now generally higher than under the previous calculation. The "Dividend Cutters" group shows the largest change in returns. Please see additional disclosures below. Past performance does not guarantee future results.