Whilst it may superficially appear that a $10,000 investment in Procter & Gamble dropped to $9,462, the truth is that the addition of dividends would actually show that a little earnings has been made. If you count the dividends that got paid along the way, a $10,000 investment in Procter & Gamble will have actually grown to a few dollars shy of $11,000. Amazing returns? No. But acknowledging returns is the difference among relatively losing $500 and booking a $1,000 profit.
Returns can also have a substantial impact on companies that cut them, just like Pfizer (PFE). Pfizer cut its quarterly dividend from $0.32 to $0.16, and has been gradually rebuilding the dividend ever since then, with the last quarterly dividend at $0.22 for each share. Pfizer traded at $23.10 on December 14th, 2007. The firm currently trades at $25.18. For five years of capital invested, not a whole lot of action. According to stock price change alone, it would likely appear that a $10,000 investment just increased to $10,904. But if you include the dividends, you will see that the $10,000 investment grew to $13,812. For a company that cut its dividend at one point on the way, that’s quite a considerable difference.
Over a five-year time stretch, these contributions to total return brought on by the dividends can be quite good. Whilst focusing on the stock price alone might give the impact that Johnson & Johnson only grew 4-5% in total within the last five years, the addition of dividends will certainly show that the result is much more like 24%. In the case of Procter & Gamble, it could be easy to assume that traders should have lost cash just because the stock value today is a couple dollars below what it was five years ago.
And in Pfizer’s case, it could possibly become easy to discount the contribution of the dividend altogether because it got cut in half at one point on the way. This is why dividend traders can often accomplish satisfactory or better total earnings without religiously concentrating on the whole earnings.
Whenever you get 2-4% added to the value of your investment each year, it is simple to see how you can have a leg up over time. The medium-term results for these three companies demonstrate the importance of dividends to an investor’s bottom-line results.
Make sure you invest appropriately and get tips and suggestions here: Gold investment.
Tags: investing, Investing Money, investments, money