Dividend stocks are favored by investors for generating passive income and achieving total returns. Total return includes interest, capital gains, dividends, and distributions. For example, purchasing a stock at $20 paying a 3% dividend can yield a 13% total return when its price rises to $22. Sustainable dividend income and capital appreciation contribute significantly to total return expectations, with dividends representing 32% of the S&P 500's total return since 1926. A study shows dividend stocks yielding an annualized return of 9.18% over 50 years, outperforming non-dividend stocks significantly.
Since 1926, dividends have contributed approximately 32% of the total return for the S&P 500, while capital appreciation has contributed 68%. Therefore, sustainable dividend income and capital appreciation potential are essential for total return expectations.
A study by Hartford Funds, in collaboration with Ned Davis Research, found that dividend stocks delivered an annualized return of 9.18% over the 50 years from 1973 to 2023. Over the same timeline, this was more than double the annualized return for non-payers (3.95%).
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