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Dividends, like increased stock price, are just another equivalent way for shareholders to gain value (with some tax differences). Many investors reinvest the dividends and so never "see" them.

Of course there are many market indexes that we can follow, but why is there more attention on the S&P 500 than the S&P 500 with dividends?

Another point: Inflation affects the real value of stocks. If I am simply comparing two investments in a given year, I can ignore inflation, but when I track an index over decades, X% annual growth in the 1970s compared to Y% in the 2000s is meaningless if one ignores inflation.

So why is there more attention on the S&P 500 than on the S&P 500 with inflation?

  • The only way that dividends result in a gain in value is if they are reinvested and there is share price appreciation. Without that, a dividend provides zero total return and if received in a non sheltered account, negative total return (taxes). – Bob Baerker Nov 28 '19 at 14:55
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    @BobBaerker Something seems off about that statement. Dividends, properly used, should reflect a distribution of value that has already been gained since the last dividend was paid. – Michael Nov 28 '19 at 18:54
  • @Michael 1 - Your response is unclear to me. (1) How are 'Dividends, properly used'? If you own the stock on the ex-div date, you are entitled to it. Is there some other usage? If so, which ones are proper and which ones are improper? (2) What have you 'gained since the last dividend was paid'? What exactly is that gain? Did share price rise? OR are you referring to some corporate gain, separate from the investor receiving the dividend? (3) What is 'distribution of value'? The value of what? The company's earnings? The company's net worth? – Bob Baerker Nov 28 '19 at 20:11
  • @BobBaerker By "proper" i mean dividends paid out from earnings, as opposed to some companies which use various accounting tricks to return capital to shareholders or pay out in an unsustainable way. When a company earns money and pays it out as a dividend while retaining its capital value, that is value that the investor has gained. – Michael Nov 28 '19 at 20:18
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    @BobBaerker that's only true for day-traders. If I have a long position on a dividend-paying stock, those bumps in stock price reflecting dividend payouts are transient. They are recovered in anticipation of the next payout. – heh Nov 28 '19 at 23:03
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TL;DR: Use raw data to enable apples to apples comparisons

The problem with inflation is what definition of inflation you're going to use and whether you (others) think that measurement of inflation is the correct version. It also can "skew" the data since the way inflation is measured changes over the years.

If you are using the S&P 500 index return data for comparison purposes then you want to use the base data. Each person can then adjust these results based on their own criteria.

Why the CPI is a problem

"Over the years, the methodology used to calculate the CPI has undergone numerous revisions. According to the BLS, the changes removed biases that caused the CPI to overstate the inflation rate. The new methodology takes into account changes in the quality of goods and substitution. Substitution, the change in purchases by consumers in response to price changes, changes the relative weighting of the goods in the basket. The overall result tends to be a lower CPI. However, critics view the methodological changes and the switch from a COGI to a COLI as a purposeful manipulation that allows the U.S. government to report a lower CPI."

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    To add a little to Frank's excellent answer: interest rates for deposits are quoted excluding inflation; rates-of-return for other investment vehicles are quoted excluding inflation. You can thus – as he says – compare apples to apples more easily. If you want to know the inflation-adjusted figures, you use whatever measure of inflation you deem appropriate (which may not be the same as the "official" figure, depending on your age or lifestyle) and apply it to all the "raw" rates-of-return. You couldn't (as easily) do that if the quoted S&P rate-of-return factored in a particular CPI figure. – TripeHound Nov 28 '19 at 14:15
  • Thank you. And why more attention on S&P 500 than S&P 500 with dividends? – Joshua Fox Nov 28 '19 at 14:21
  • I'd say it's for consistency of comparisons. If you are evaluating an investment product that doesn't pay dividends or doesn't allow for dividend reinvestment (e.g. fixed income, really any non equity product) then you'd be comparing oranges to tangerines – FrankRizzo Nov 28 '19 at 14:43
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    For consistency, it seems to you to compare total returns to total returns. A stock basket that cost $1000 and in a year is worth $1100 and gave $100 of dividends is comparable to a 20% fixed-interest, not 10%. – Joshua Fox Nov 28 '19 at 21:51
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For inflation, FrankRizzo's answer is good.

For dividends, the situation is very different. The standard "price return" measure used for indices like the S&P 500 includes the price drops due to dividends but not the dividends themselves. This is indeed arbitrary and not a good basis for comparing investments with different dividend yields. The only excuse is that dividends in recent decades for a large part of the stock market have been a fairly small (but not negligible!) fraction of total returns.

To properly compare different stocks, bonds, and indices, total returns including all cash flows (dividends and/or interest) should be used. In particular, this is the rule for reporting mutual fund returns. People should be more widely quoting things like the S&P 500 total return index.

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