Companies continued paying dividends even in the down markets of the 1930’s and the 2000’s. While more volatile, the capital appreciation component grew an average of 5.8% per year, easily outpacing the annualized 1.8% inflation rate over this time period.
S&P 500 TOTAL RETURN: DIVIDENDS & CAPITAL APPRECIATION (1926 – 2015)
Source: Ibbotson, Standard & Poors
The Financial Crisis of 2007-2009 caused many investors to fall behind on their retirement planning and the current low-rate environment makes it even more challenging for investors relying on investment income. Investors choosing bonds over dividend-paying stocks run the risk of having their savings eroded by inflation. The current 10-year US Treasury bond yields just above 2% which is barely ahead of today’s annual inflation rate of 1.5%.
Having to rely on today’s low rates for income is exacerbated by longer retirements. Based on research by Boston College, the number of years in retirement has risen from 13 in 1962 to 20 in 2013, and is expected to continue rising as people enjoy longer lifespans1.
Dividend-paying equities represent an attractive source of investment income while also providing the opportunity for capital growth. This combination makes dividend stocks an important tool to help investors avoid exhausting their retirement savings.
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IMPORTANT INFORMATION AND DISCLOSURES
1. Source: Boston College Magazine, Spring 2015
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