On The Importance Of Dividend Growth To Long-Term Returns

Dividends play an important role in long-term equity returns. In fact, dividend growth is more important to long-term returns than dividend yield and P/E expansions. According to an post by Matthew A. Young at Young Investments, dividend growth accounts for a large portion of returns. From the article:

Dividend Growth is Key

MSCI published a report last year highlighting the importance of dividend growth to the return of global equity benchmarks. The chart below, taken from the report, shows that the longer the time horizon, the more important dividend growth becomes to overall return. Over short periods of time, returns are dominated by changes in valuation, but over the long run, dividend growth dominates. For the 20-year period ending in 2015, dividend growth contributed 65% to the total return of the MSCI All-Country World Index.

Average absolute return contribution from Dividend Yield, Dividend Growth, and Valuation Adjustments for different holding periods.

Source: Client Letter – July 2017, Young Investments

Five dividend growth stocks are listed below with their current yields for further research:

1.Company: General Mills Inc (GIS)
Current Dividend Yield: 3.42%
Sector: Food Products

2.Company: Royal Bank of Canada (RY)
Current Dividend Yield: 3.62%
Sector: Banking

3.Company: 3M Co (MMM)
Current Dividend Yield: 1.97%
Sector: Manufacturing Conglomerate

4.Company: Johnson & Johnson (JNJ)
Current Dividend Yield: 2.41%
Sector: Pharmaceuticals

5.Company:PPG Industries Inc (PPG)
Current Dividend Yield: 1.54%
Sector: Chemicals

Note: Dividend yields noted above are as of Dec 6, 2017. Data is known to be accurate from sources used.Please use your own due diligence before making any investment decisions.

Disclosure: Long GIS and RY

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