Did you happen to be in 100% cash and then decide to invest all of your money in the stock market on October 9, 2007? Unlikely. The S&P 500 closed at its highest point ever on October 9, 2007, at $1,565.15. During the dot-com boom the S&P 500’s peak close was $1,500.64. However, even if you invested all of your money into the S&P 500 on October 9, 2007, at the absolute peak, you’d have more money today than you originally invested.
On April 2, 2012, the S&P 500 closed at $1,419. That’s up 12.8% this year, and about 10.2% from its all-time high. But it’s still down from it’s peak, right? Well, the S&P 500 simply tracks price changes and doesn’t incorporate reinvested dividends. To get the true return of the S&P 500 you have to look at the S&P 500 Total Return Index, which includes reinvested dividends. On Monday, the S&P 500 Total Return Index closed at $2,449. On October 9, 2007, the index closed at $2,447. Obviously it’s not a big gain, but S&P 500 hasn’t done as made as the average person is led to believe.
For those who tend to focus on the price of stocks, I think this illustrates the great impact that dividends can have on returns. During the dot-com boom, interest in dividends fell and were considered to be one of those “old metrics” that was no longer valuable. With high-flying companies such as Apple recently announcing dividends, I think it’s safe to say that dividends are coming back into flavor.
(Note: Graph above courtesy of Bloomberg)