Why Dividends Make a Difference

What’s all the fuss over dividends? Do they really make that big of a difference? In All About Dividend Investing, 2d ed. (McGraw-Hill, 2011) Don Schreiber, Jr. and Gary E. Stroik argue that they make a huge difference. Dividend stocks are often recommended in down cycles. In the particular cycle the authors picked (or cherry-picked) $100,000 invested in the DJIA Index in 1966 would have declined to $90,275 by 1981. Had a person reinvested dividends, thereby acquiring more shares as prices were falling, the account would have been worth $186,661 in 1981.

In bull markets dividend-paying stocks may underperform the more speculative non-dividend-paying growth stocks (in 1999 the NASDAQ gained 85% while the DJIA advanced only 25%). But with dividends reinvested the return would have increased substantially. An investment of $100,000 in the DJIA in 1982 would have been worth $1,302,760 at the end of 1999; with dividends reinvested, the value would have been $2,056,109.

Source: Seeking Alpha

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