Record stock prices create opportunities in the news cycle to present you with the view of what's possible. The greatest wealth creation machine in the history of the world is the United States stock market. The average rate of return in the S&P 500 is 10.1%. To give you an idea of how truly powerful that kind of return really is, here's an example, $1,000 invested today at average market returns equals $20,400 in 30 years.
Not bad right? But here’s the thing. It’s not just about stock prices rising. It’s about what they pay you to own them. The semi-secret of long-term investment success has been dividend payouts. Historically nearly 60% of investment gains have come from dividends being paid out. Dividends are great for two reasons. If you don’t need them right now, great, setup automatic reinvestment for free and continue to add to your investment compounding the future rates of return and dividend payouts. If you do ok, you have cash flow coming in from dividends without having to sell your investments to realize a return. That’s always true. But what’s going on right now is pretty special. I don’t know anyone who wouldn’t want a 10% raise and this year stocks are giving it to you.
It’s not just personal incomes that are rising in the workplace over the past couple of years with the improved economy and tax policy. It’s corporations as well. Entering 2017, dividend growth was pacing a solid 5% growth rate for S&P 500 companies. Over the past two years, that’s consistently ramped up as earnings have as well and the dividend growth rate for 2019 is 9.9%. There aren’t many ways you’ll get a 10% raise without significant changes. This is one that investors are seeing without doing anything differently. It’s also a powerful reason why stocks have performed so well and should continue to support stock prices throughout the year should the trend continue.
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