As of this morning, the S&P 500 is up over 13%, including dividends, for 2010. This performance is significantly above long-term average returns, and remarkable when considering all of the headwinds that the markets faced in 2010. These impressive results are largely due to the exceptional growth in corporate earnings, which will increase nearly 47% over 2009. Of course, the above average growth in both stock prices and corporate earnings came after exceptionally low earnings and market prices in 2008 & 2009.
This is where our dividend investing philosophy should serve us well. As we have said before dividends fill two important roles for us. 1) They are real cash and have represented over 40% of the total returns of stocks since 1926; 2) Companies that pay a consistently rising dividend can be more accurately valued than non-dividend payers or irregular dividend payers. Our dividend valuation models give us a ballpark idea of the “fair value” of a company at any point in time. In our minds, as stocks continue to march higher, our models will be very helpful in assisting us in knowing when the fair value line has been crossed.
Source: Rising Dividend Investing
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