More Proof That Dividends Drive the Dow's Returns

Dividend payments make a huge difference to the Dow's overall returns.

Jun 19, 2014 at 4:30PM

The Dow Jones Industrials (DJINDICES:^DJI) posted a modest 15-point gain today, as investors continued to assess how much more headway the index can make as it once again approaches record levels. Yet with all the attention the Dow gets when it hits a new closing high, one thing that often gets neglected is the fact that dividend payments make up a substantial part of the average's overall return. For Dow components AT&T (NYSE:T), Pfizer (NYSE:PFE), and Intel (NASDAQ:INTC) particularly, dividends have made the difference between subpar results and reasonable returns.

Dividends have always been an essential component of the AT&T's total return. With massive cash flow generated from its wireless network, the telecom giant can plow plenty of capital investment back into expanding and improving its service while also rewarding shareholders with the richest yield in the Dow Jones Industrials. Indeed, over the past seven years since the last time the Dow was hitting new record highs, AT&T's share price has actually declined in value. But when you add in its lucrative dividend yield, AT&T's average annual return amounts to almost 4%.

T Chart

AT&T data by YCharts.

Pfizer has a mixed reputation as a dividend stock, with the pharma company making a big dividend cut when it acquired Wyeth. Even though Pfizer has suffered substantial drops in revenue with the loss of patent protection for some of its best-known medications, the Dow component has still paid reasonable quarterly dividends to shareholders. Without dividends, Pfizer's share-price returns over that seven-year time frame would have been limited to less than a 2% annual clip. With them, the stock's average annual return climbs above 6%.

PFE Chart

Pfizer data by YCharts.

Intel has the distinction of being one of the first technology stocks to emphasize dividends. For much of its history, Intel's payout was merely a token, but dividends have more recently played a greater part in the chip giant's total return. In particular, Intel's share price has lagged behind some of its peers because of the company's challenges in keeping up with changes in mobile technology. Yet when you include the impact of dividends, Intel's roughly 3% annual return doubles to more than 6%.

INTC Chart

Intel data by YCharts

One problem with the Dow Jones Industrials is that the index ignores dividends. But investors should pay close attention to Dow dividends, because they can make a huge difference to your total return.

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Intel. The Motley Fool owns shares of Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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