Dividend stocks can transform a portfolio from a dud into a winner. Naturally, sustainable high-yielding dividends like the payout from pipeline company MPLX (MPLX +0.00%) are considered better than lower-yielding ones.
But has that actually been true for MPLX, or has its high payout masked lackluster performance? Here's how the midstream energy stock has really been doing.
One year: A close contender
At first glance, it might look like MPLX has badly lost to the market over the past year, with shares up only 6.2% compared to the S&P 500's 12.9% gain:
NYSE: MPLX
Key Data Points
However, for this high-yielding stock, we need to factor in MPLX's hefty distribution, which currently yields 7.2%. That makes all the difference here. On a total return basis (which factors in dividend reinvestment), MPLX has provided its shareholders with a 13.6% return, which is much closer to the S&P 500's 15% total return for the year.
For many dividend stocks, the true benefit of dividend reinvestment gets stronger over time due to compounding. Is that true for MPLX?
Three years: A big difference
Even if you don't count dividends, MPLX has actually performed pretty well over the last three years, with a 61.3% return compared to the S&P 500's 67% return.
However, once that huge payout plus compounding is factored into the total return, the difference is astonishing. The S&P 500's three-year total return is 75.3%, but MPLX's is a massive 105.7%! In this case, the distribution makes all the difference, and MPLX is a clear winner. But does the pattern hold for a five-year investment?
Image source: Getty Images.
Five years: To the moon
Indeed it does!
Not only does MPLX's unadjusted five-year return of 160.6% beat the market's 88.1% return over the same period, but its total return of 308.4% absolutely smashes the market's overall return. In fact, over five years, MPLX's total return is nearly three times the S&P 500's, 308.4% vs. the market's 103.6%.
The power of compounding means that many investments will do exponentially better over the long term, and that's why it's important for investors to buy and hold as opposed to trying to time the market. This is especially important for high-yielding stocks like MPLX.
If you don't reinvest those dividends, you'll get a decent payout every quarter, which is fine for income investors. But if you do reinvest dividends, they'll continue to help grow your investment exponentially, which will eventually result in you having more shares, which will yield more dividend payments, and which can supercharge your long-term returns.
