Its’ a Philosophy: Thoughts on the Power of Dividends

by | Apr 16, 2015

When thinking about the strong returns many investors have enjoyed from stock ownership in recent years, most professional and individual investors would likely Dividends-monopolyassume that the vast majority of profits were the result of rising stock prices. These same investors might assume that dividends played only a minor role in the overall investment result. Not true, it turns out.

According to a study published by Morgan Stanley analyst Adam Parker, dividends represented fully 41.8% of total equity returns going all the way back to 1930. In the 1970s, 71% of total returns were in the form of dividends as stock prices stalled for much of that decade. In the nifty-fifty bull market of the 1960s, 41% of total return was the result of dividends according to Morgan Stanley. [1]  So if you think dividends are for just for little old ladies, you’re missing a lot of what stocks have to offer.

So what is Dividend Power?

Dividend Power is not a fixed portfolio, it’s not an ETF, mutual fund, or a hedge fund . Dividend Power is a Philosophy. It’s a way of thinking about how investment returns are actually realized. 

Any successful Investment process is usually the result of a rational method; action should follow thought, unlike the fire-ready-aim quick impulse actions we see high speed traders engage in every day. Dividend Power is way of being rational, thoughtful and certain about an investment process that can produce consistent cash-in-hand returns over time. This is particularly valuable in today’s ultra low interest rate environment.

Dividend Power takes the form of a what is called a portfolio “motif” a notional theme that in this case emphasizes dividend cash flows not only by choosing the best quality stocks and mutual funds that pay dividends, but by choosing stocks and funds than can increase dividend payments over time. Dividend power can compound returns by reinvesting dividends into the stocks and funds that pay them, but can also take cash from dividends to buy other dividend paying stocks and funds. In addition, Dividend Power Portfolio positions are selected for growth possibility as well as income. The two dynamics combined can result in a Total Return that can rival many growth strategies* 

Not many stocks and funds can qualify for the Dividend Power concept. Any asset that is considered for inclusion in the Dividend Power model must be thoroughly researched for intrinsic value, dividend growth and capital growth prospects.

Keeping in mind Morgan Stanley’s observations about the power of Dividends, many institutional, retirement and individual investors can develop a conceptual edge as they confront the ultra low interest rate reality of today’s’ financial markets.

More on Dividend Power to follow on the K Blog. 

So exactly what are the returns for Dividend Power? Those figures need to be disclosed in the way permitted by regulators, which means you’ll need to inquire with Dividend Power asset manager Benjamin Lupu CFP® at Kensington A.M.I LLC in Burbank California.  [email protected]

 [1] Morgan Stanley, Adam Parker, 2013

*SEC and FINRA regulations prohibit displaying on media any numerical portfolio returns managed by Registered Investment Advisors




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