Dividends Can Make You Rich
4/19/2012 9:06 PM Thursday
Dividends often meet with step motherly treatment vis-à-vis capital appreciation. Investors tend to focus too much on the capital appreciation part of investing in stocks, considering dividends to be only a miniscule aside being added to the overall value that is created. Is this true? Do dividends paid out by companies to shareholders from the profits they earn make no dent at all when it comes to value creation? Well, read on. We are sure this story would permanently change your perception about dividends and value investing in good stocks. The insights provided by the study that we have conducted on dividends paid out by companies over a period of 16 years suggest that investors need to be as serious about dividends as they are about capital appreciation. As these findings suggest, dividends can make you really rich.
Good and consistent dividend paying companies have always been looked upon as sound investment bets by investors across the world. Voluminous research has been conducted and documented on various topics relating to dividends and dividend paying companies. Despite all the research, whether consistent dividend paying companies are better investment options in terms of capital appreciation than non-dividend paying companies across market conditions (whether a bull or a bear market) is a fairly debatable point.
Whatever the answer is, the fact remains that dividends form an integral part of your investment returns and have the ability to enhance your total returns beyond your imagination. Take the example of Hero MotoCorp. For an investment in this stock at the start of year 2000 (when the stock market was at its peak), the total return at the end of 2011 would have been at more than eight times. Now add to this the dividend earned by the investment over these years, and the total returns shoot up to almost 10 times. What this means is that almost onesixth of the total return is generated by dividend income. Note that this does not include the reinvestment of dividends.
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