On The Power of Dividends and Compounding Using S&P 500 Returns

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Dividends play a critical role in the long-term returns of equities. Stocks that pay dividends are ideal investment vehicles for building wealth over many years or decades. Generally dividend payers tend to raise dividends occasionally if not consistently each year. So dividend yields of even 2% as a starting point can lead to substantial growth in the long run due to the power of compounding. The magic of compounding comes from the additional shares purchased in small increments each quarter. In bear markets dividends may offer the only return on an equity investment. It is possible to earn a decent dividend income with a well diversified portfolio even when the market goes south.

The power of dividends and compounding is vividly illustrated below using the S&P 500 index returns from 1960 to 2021. A $10K investment would have grown to over $4.9 million with the S&P 500 Total Return which includes dividend reinvested compared to just under $800K with the S&P 500 Price Index during the period noted above. The wide gap in returns is indeed astonishing.

 

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Source: The Power of Dividends: Past, Present, and Future, Hartford Funds

So the key takeaway is that investors should not ignore dividends. According to the above research report from Hartford Funds, 84% of the total return of the S&P 500 from 1960 to 2021 came from reinvested dividends.

Related ETFs:

  • SPDR S&P 500 ETF Trust (SPY)
  • iShares Select Dividend ETF (DVY)

Disclosure: No positions

Who Imports The Most Russian Oil: Infographic

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Russia is one of the world’s major oil producers and exporters. Much of Europe including the economic engine Germany depend on Russian oil. Among the emerging markets China is a major consumer of Russian oil. The following infographic shows additional insights on the dependency of other countries for crude oil from Russia:

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Source: Information is Beautiful

The Top 10 Pharmaceutical Companies in the World 2021

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The Covid-19 pandemic showed the critical importance of the global pharmaceutical industry. Unlike other industries, drug companies both large and small swing into action in their quest for the discovery of a covid vaccine. The industry deserves credit for the successful discovery of a vaccine and saving the humanity. With that said, its been a while since we looked at the world’s top drug companies. So let’s review the top firms in this post.

The Top 10 Pharmaceutical Companies in the world based on 2021 revenues is shown in the chart below:

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Source: Who are the top 10 pharmaceutical companies in the world? (2021), Proclinical

Swiss drug giant Roche(RHHBY) was the world’s top pharma company with a revenue of $49.5 billion in 2020. Roche is a leader in oncology, immunology, infectious diseases, ophthalmology and neuroscience. The next best firm is the cross town rival Novartis(NVS) which has launched breakthrough medicines for over 250 years. The rest of the firms in the top 10 list are the usual leaders.

Referenced Companies:

  • Roche Holding AG (RHHBY)
  • Novartis AG (NVS)
  • AbbVie Inc (ABBV)
  • Johnson & Johnson (JNJ)
  • Merck & Co Inc (MRK)
  • Pfizer(PFE)
  • Bristol-Myers Squibb Co (BMY)
  • Sanofi (SNY)
  • Amgen, Inc (AMGN)

Disclosure: No positions

Mercer Periodic Table of Annual Investment Returns for Australian Investors 2012 To 2021

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One of the main factors that is important for success with investing in equities is the art of diversification and having patience. Diversification can be achieved in many ways such as spreading over one’s assets over different asset classes, countries, regions, sectors, etc. The benefits of this strategy was widely made popular with the Callan Periodic Table of Investment Returns. Many others have replicated that design and created periodic table of investment returns charts. I came across the following Periodic Table of Annual Investment Returns published by Mercer for the Australian Equity Market. This chart also clearly shows the advantages of diversification for Australian investors.

Mercer Periodic Table of Annual Investment Returns for Australian Investors 2012 To 2021:

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Note: Returns quoted are based on Australian Dollars

Source: Mercer

In 2021, Australian stocks as represented by the S&P/ASX 200 index returned 17.54%. But International Equities  (Hedged) performed even better and yielded 23.88%. Aussie Small Caps and Direct Property had lower returns as well.

Below are some findings from the Mercer report:

“Demystifying the Mosaic

Looking across 2021 and the past decade, a number of observations can be made from the Periodic Table:

  • 13 of the 17 asset classes generated a positive return last year – bettering 2020 (12 positive returns) but not as remarkable as the 100% outcome achieved in 2019.
  • Leading the way in 2021 was Global Listed Property (H) with a stellar return of 29.8%. Amidst a busy year property markets recovered. Investors sought out alternative inflation linked sources of return and the asset class delivered handsomely.
  • Global Equity (UH) featured in second place in 2021 (+29.6%).  The rally for the asset class continued from +4.5% in the previous year as confidence in risky assets returned post pandemic.
  • International Equity (H) was another asset class that produced impressive returns in 2021, up +23.3%. Meanwhile, in a notable divergence occurred for Emerging Market Equities UH (+3.4%) and Emerging Market debt, which were far softer (-3.2%) with Turkey and China amongst the main soft spots with economic and political developments.
  • Australian Equity (+17.5%) lagged other developed markets like the US which had more growth/tech exposure, as Australia relies more on traditional industries.
  • Fixed income in general faced a difficult year end as inflation expectations increased, with global sovereign bonds returning -2.9% and Australian fixed income returning -3.2%.”

Source: Mercer

An interactive version of the above chart and other valuable charts can be found at their site here.

Related ETF:

  •  iShares MSCI Australia ETF(EWA)

Disclosure: No positions