Dividends are the investor’s best friend.
While companies such as Berkshire Hathaway, Amazon and Google eschew dividends in favor of reinvesting capital, there’s no denying that for the rest of the market, dividend distributions are essential for returns.
Indeed, in 2015 Hartford Funds published a white paper on the power of dividends, which found that Going back to 1960, 81% of the total return of the S&P 500 Index can be attributed to reinvested dividends and the power of compounding. According to the research, dividends are especially important during periods when the S&P 500 struggled. In the 1960s and 70s for example, dividends accounted for 44% and 73% respectively of the index’s total return.
This Hartford's research isn't the only insight on dividend investing out there, but it does reflect the conclusion all dividend research has concluded: You can't beat the market over the long-term without dividends.
Dividend Underlying Growth Pushes Payouts To All-Time High
Luckily for dividend investors, dividends are now growing at the fastest rate in three years according to Janus Henderson's Global Dividend Index. The index, which analyses dividends paid by the 1,200 largest firms by market capitalization, notes dividends surged 14.5% to $328.1 billion, the fastest headline growth rate in three years and a record for third quarter dividend payments. Meanwhile, underlying growth was 8.4%, the highest level in almost two years with every region reporting growth. For the full-year, the index is predicting a record $1.25 trillion in total dividend payouts, up 7.4% year-on-year in headline terms.
Dividends from UK listed companies grew the fastest during the third quarter, as miners recovered from a multi-year slump and began distributing excess profits to investors. Overall, underlying UK dividends jumped 17.5% in Q3, giving a total of $29.6 billion. Rio Tinto paid its largest interim dividend ever recorded as BHP Billiton trebled its dividend year-on-year
In North America, growth was rapid in both the United States and Canada, up 9.2% and 11.0% respectively on an underlying basis.Every US sector saw higher payouts but banks were the standout performers with average distributions leaping 20% year-on-year thanks to large increases from Bank of America, and Citigroup.
North American dividends dominated the third quarter, accounting for four dollars in every ten paid globally.
In Asia, underlying growth was also impressive at 12.1%, with records broken in Hong Kong, Australia, and Taiwan. A record number of special dividends benefitted Hong Kong as Australia profited from the mining boom.