The Extraordinary Power of Dividends: Altria Edition

I took my first investing class as a teenager, and one moment stands out in my memory. A fellow student asked the instructor, a stockbroker, about dividends. "Dividends?" he asked. "I'm trying to make my clients wealthy. You don't do that waiting for tiny checks in the mailbox every quarter." Even then, I had enough horse sense to know he was wrong. Paying attention to dividends is exactly how you become wealthy over time. Wharton professor Jeremy Siegel made a wonderful discovery in his book The Future for Investors. The greatest long-term returns typically don't come from the most innovative companies, or even companies with the highest earnings growth. They come from companies that happen to crank out dividends year after year. Simply put, since the 1950s, "the portfolios with higher dividend yields offered investors higher returns." Market commentary regularly centers around price gyrations, yet dividends have historically accounted for more than half of total returns. Reinvest those dividends, and the results are magnitudes greater. Take, for example, Altria Group (NYSE: MO). Altria's shares have increased 11,000% since the late 1960s. But factor in reinvested dividends, and the total return jumps to 278,000%:... Read more

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