Dividends as Part of Total Return

Receiving dividends is a tangible way of seeing returns from your investments.  Along with price increases (or decreases) dividends comprise what is known, not surprisingly, as total return.

And it’s intuitive – if you are being paid dividends you are getting a return on your investment. But good luck seeing that calculated into the returns shown on your brokerage statement or web site.

Schwab, for instance, will show you annualized dividends on the monthly statement.  But on their web interface if you check for Unrealized Gains/Losses you see only the change in price. If you automatically reinvest dividends back into a holding, they will track and report that as a new investment, not part of the return from the original investment.

Brokers do this as it ties to capital gains/losses that are realized, which they will feed into the 1099’s they issue for tax return purposes.

But as an investor seeking to understand the total return of a given investment you are often left to your own devices, with calculator in hand.

Eddy Elfenbein of Crossing Wall Street just published the following:

Investors sometimes overlook the importance of dividends. Consider these stats: From the market’s closing low on March 9, 2009 until yesterday’s close, the S&P 500 gained 233.74%. But the S&P 500 Total Return Index, which includes dividends, gained 294.06%. That’s a nice boost.

Like individual brokerage statements, most discussion of market returns focus on price change alone.

The point is that dividends are a major contributor to total returns, so keep them in mind when evaluating the performance of your investments.

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