Investing in dividend stocks is a wise strategy for many reasons including the fact that dividends alone account for one-third of the S&P 500’s Total Return from 1960 to 2019. So though the dividend yield is small for most US stocks relative to other developed markets they are still important from a long-term wealth building perspective. I came across an interesting study titled “The Importance of Dividends to Total Returns“. by Job Curtis and Neil Hermon at Janus Henderson. Below is an excerpt from the research:

The contribution of dividends to total returns fluctuates over time of course. The analysis below of the widely-followed US large cap barometer, the Standard & Poors 500 Index (S&P 500) from 1930 to 2019, conducted by US-based asset manager Hartford Funds, shows that for the period as a whole, the divided contribution averaged 42% which equates to 1.8% per annum on an annualised basis. Looking at the decades discretely, however, illustrates the extent to which that contribution to total return varies.

Source: Morningstar/Hartford Funds, 02/2020. S&P 500 Index is a market capitalisation weighted price index composed of 500 widely held shares. *Total return for the S&P 500 Index was negative for the 2000s. Dividends provided a 1.8% annualised return over the decade.

During the 1940s, ’60s and ’70s – decades in which total returns were lower than 10% – dividends played a significant role in terms of their contribution, but played a smaller role during the 1950s, ’80s and ’90s when total returns were well into double figures.

During the 1990s, dividends were de-emphasised as companies chose to deploy capital by reinvesting into their businesses rather than by returning it to shareholders. From 2000 to 2009, a period commonly referred to as ‘the lost decade’^[3], the S&P 500 delivered a negative return, primarily a consequence of the bursting of the dotcom bubble in March 2000.

^[3] Source: S&P 500 Index

Source: The Importance of Dividends to Total Returns, Janus Henderson

The following is a neat illustration of the above topic for a hypothetical investment from 1978 to 2018:

Click to enlarge

Source: Merits of Dividends, ThomasPartners

From the above article:

To total returns over time.

The ability to reinvest dividends has had a significant impact on an investor’s ability to create wealth in the stock market.

For example, if an investor had purchased one theoretical share of the S&P500 index on December 31, 1978, it would have cost them about $96.11. 40 years later, on December 31, 2018, that one share of the S&P500 would have appreciated to nearly $2,506.85 If the investor had been able to reinvest those dividends in the index, their investment would have grown to over $7,500.

Investors interested in adding dividend payers to their portfolios can consider the below stocks for further research:

1.Company: Exelon Corporation (EXC)
Current Dividend Yield: 3.62%
Industry: Electric Utilities

2.Company: Royal Bank of Canada (RY)
Current Dividend Yield: 4.06%
Sector: Banking

3.Company: Union Pacific Corp (UNP)
Current Dividend Yield: 1.82%
Sector: Railroads

4.Company: Kimberly-Clark Corp (KMB)
Current Dividend Yield: 3.45%
Sector: Household Products

5.Company: Bancolombia SA . (CIB)
Current Dividend Yield: 4.17%
Sector: Banking

6.Company:Colgate-Palmolive Co (CL)
Current Dividend Yield: 2.24%
Sector: Household Products

7.Company: Enbridge Inc (ENB)
Current Dividend Yield: 7.61%
Sector: Oil & Gas Transportation

8.Company: National Grid PLC (NGG)
Current Dividend Yield: 5.30%
Sector: Multi-Utilities

9.Company: Duke Energy Corp (DUK)
Current Dividend Yield: 4.30%
Industry: Electric Utilities

10.Company: The Hershey Company (HSY)
Current Dividend Yield: 2.12%
Industry: Food Products

Dividend Withholding Tax: RY, CIB, ENB, NGG are foreign stocks. Hence the dividend withholding taxes may reduce the yield quoted above. The applicable rate can be found here. On top of this, ADR fees may also be applied.

Note: Dividend yields noted above are as of Feb 16, 2021. Data is known to be accurate from sources used. Please use your own due diligence before making any investment decisions.

Disclosure: Long UNP and RY

Related ETFs:

• SPDR S&P 500 ETF Trust (SPY)
• iShares Select Dividend ETF (DVY)
• Vanguard High Dividend Yield ETF (VYM)
• Vanguard Dividend Appreciation ETF (VIG)

Disclosure: No Positions

Baillie Gifford, the Scottish investment manager has sold half of its take in electric car market Tesla(TSLA), according to an article at CityWire, UK. BG was the largest institutional investor in Tesla with holdings of about 40 million shares or about 8% of the company at one time last year. It is not surprising that BG has decided to lock in the gains since they started buying shares when they were $6 many years ago. Since then the stock has sky-rocketed with a 695% return in 2020. This year the stock has increased from under $730 in January to close at $816 on Friday.

On Feb 8th, Tesla announced as investment of $1.5 billion in bitcoin. Some market participants have wondered if this is a wise strategy for the firm. In addition, last week Musk’s brother Kimbal Musk sold $25 million worth of Tesla shares. Now with BG paring down their investment some investors may be wondering if the top is already in for the electric car marker’s stock.

From the article at CityWire, UK:

Baillie Gifford has slashed the size of its holding in Tesla, the Elon Musk-led electric vehicle company which was its highest conviction bet and biggest driver of returns last year.

The Edinburgh-based asset manager has halved the weighting in both Scottish Mortgage (SMT), the UK’s largest investment trust, and Baillie Gifford US Growth (USA), the best-performing trust last year.

The trusts’ positions in Tesla grew significantly after its nine-fold share price leap in 2020, and after taking some profits, USA’s exposure has fallen to 4.4% from 8.7%.

Other Baillie Gifford funds have yet to report their latest portfolio weightings, but seem likely to have followed suit. Having been Tesla’s largest external investor a year ago with a 7.7% stake, Edinburgh-based Baillie Gifford cut its exposure to 2.8% at the end of December, ranking it Tesla’s fifth biggest shareholder, including Musk who owns 18%, according to Refinitiv data. This was down from Baillie Gifford’s 4.4% position in September.

According to Scottish Mortgage’s latest factsheet, first reported by Fund Hunter on Twitter, Tesla was a 5.1% position, the fourth biggest in the global portfolio at the end of January. This was cut from 8.9% at the turn of the year when it was still its top holding by a significant margin.

Source: Baillie Gifford halves Tesla holding to lock in huge gains, CityWire UK, Feb 15, 2021

Related:

• Tesla investment reaps $29bn profit for Edinburgh fund manager, The Guardian, Jan 24, 2021
• How Tesla generated billions for Scottish stock-pickers, The BBC, Jan 28, 2021

Disclosure: No Positions