Published Thu, 14 Mar 2019 03:34:55 -0400 on Seeking Alpha
I’m old school, and I like my dividends.
Yes, I know. I’m being hopelessly stodgy. Dividends are almost inconsequential these days compared to the returns realized from rising stock prices.
Since bottoming out in early 2009, the S&P 500 has exploded higher at a compound annual growth rate of over 15% per year and is up over 300% cumulatively. What’s a couple percent in dividends when you’re looking at those kinds of capital gains?
Furthermore, very few sexy, high-growth tech companies pay dividends. Amazon (AMZN), Facebook (FB), and Alphabet (Google) (GOOG, GOOGL) certainly don’t, and none have immediate plans to start.
But it’s important to keep a few things in mind. To start, the 15% annualized returns we’ve seen over the past decade in the S&P 500 are by no means normal. The long-term term historical average is closer to 10%.
And mean reversion being what it is, having a long period of above-average returns means we need to have a long stretch of lower-than-normal returns to get us back to the long-term average. Not even the glassiest-eyed permabull seriously believes returns of 15% per year can continue forever.
Let’s slice the numbers a little differently.
The returns you achieve are ultimately a product of the price you pay. When you buy them cheaply, you put yourself in position to enjoy higher-than-average returns. When you overpay, you set yourself up to be disappointed.
Well, the S&P 500 currently trades at a... Read more
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