Dobromir Stoyanov submits:
Over the past 80 years, stocks have returned almost 10% annually. Dividends have accounted for approximately 40% of average annual returns. At the same time inflation has averaged 3% annually. These numbers are all averages however – investors cannot expect to generate 10% per year in total returns every single year. Stock returns fluctuate over time. While stock prices gyrate wildly up and down dividends provide a more stable component of total returns.
The relative stability of dividend payments makes them an ideal source of retirement income for individuals looking to live off their investments. Not only are dividend payments stable however, but they also tend to rise faster than the rate of inflation over time. Over the past 80 years, dividends have increased by 5.4% on average, which was almost 2.4% higher than the rate of inflation. Earnings per share, which is the ultimate driver behind dividend growth, increased by 5.50% over the same time period. Without earnings growth, companies could not afford to raise distributions consistently.
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