Day 169: Dividends, You Are Pretty Cool.

Over the past week or so, I’ve been like a kid waiting for Santa. The cause of my anticipation? No, not Christmas. Instead, it’s the arrival of year-end dividends from our investments.

Ironically, when I started investing, I didn’t know what dividends were. I basically thought of investing as buying and hoping that the price will rise. Like a lot of people, I focused on price appreciation. This is the glamorous poster-child of investing that gets all the attention. You read stories of people who bought Tesla at $13, for instance, and then made millions of dollars when the price ballooned. Price appreciation is an important part both of what people often hope for in their investments and the returns they ultimately receive on them.

Dividends get less attention but are just as important. In fact, I was surprised awhile ago to read that dividends are thought to be responsible for 40% of the returns in the S&P 500.* Personally, I became interested in dividends when I noticed our investments receiving these steady drips of free money that were automatically reinvested to buy more shares. Wow! And what did we do to earn this privilege? We simply bought and held ownership in stocks and bonds (well, in index funds own these).

Now I always appreciate our dividends. They are especially notable in years like 2022, when prices have dropped so much that dividends account for a much higher percentage of the return on our investments. It is soothing to think about these magical investing seeds–by-products of investing– come from our investing trees, which can be used to grow more investing trees.

I thank you, dividends. You are pretty cool.

*I couldn’t find an article on this subject I wanted to share, but if you are so inclined, browse “dividends 40% of s&p returns” and you will find some interesting insight on this.

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