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I read in Boglehead's Guide to Investing (second edition):
Stock dividends can be a major source of fund returns. Since 1926, when reliable data first became available, dividends have accounted for approximately 35 percent of total return.
What happened in 1926 that made data on stock dividends reliable?
So I was able to find a source for timing around the 1926 date:
The Chicago Booth Center for Research in Security Prices
states that their initial correction for cash dividends came from:
- 1926-1936: Moody’s Quarterly Dividend Record
Since the only known complete file of this last publication was in Moody’s New York offices, the data from the earlier period were recorded in the Moody’s offices by trainees working for the research division of Merrill Lynch, Pierce, Fenner & Smith Inc.
See: http://www.crsp.com/products/documentation/data-sources
Curiously this last part appears to be a quote from 1964 article titled "Rates of Return On Investments In Common Stocks" by L. Fisher and J.H. Lorie
1964 article from the University of Chicago Journal Of Business: http://www.crsp.com/50/images/rates%20of%20return%20paper.pdf
More of a side note:
While Robert Schiller states on his Online Data page at Yale that for his book Irrational Exuberance:
Monthly dividend and earnings data are computed from the S&P four-quarter totals for the quarter since 1926, with linear interpolation to monthly figures. Dividend and earnings data before 1926 are from Cowles and associates (Common Stock Indexes, 2nd ed. [Bloomington, Ind.: Principia Press, 1939]), interpolated from annual data.
So it appears for academic purposes approximations from annual data are used for pre-1926 analysis and quarterly values for post-1926 analysis.
"Stock dividends can be a major source of fund returns. Since 1926, when reliable data first became available, dividends have accounted for approximately 35 percent of total return."
Sorry, I don't know the answer to what happened in 1926.
Yield and Total Return are not equivalent and yet their interchangeable usage today by many is misleading. Dividends are not a source of fund return nor do they produce income for the investor because share price is reduced by stock exchanges on the ex-dividend date.
Consider two identical companies ABC and XYZ which provide a Total Return of 50% ($100 investment grows to $150).
(1) Buy ABC at $100. It pays no dividend and at the end of the time period, share price is $150. The gain is $50.
Total Return = $50 (cap gain) + $0 (div)
(2) Buy XYZ at $100 which pays out $10 in dividends in the same time period (share price drops a total of $10 across all of the ex-div dates). It too rises $50 in this time period, ending at $140.
Total Return ($50) = $40 (cap gain) + $10 (div)
In reality, XYZ had $50 of cap gain but along the way they paid you $10 in dividends. It was just money shuffling bookkeeping.
The result in both scenarios may or may not be the same.
If it's a sheltered account and you do not reinvest the dividend, the result is identical (no taxes, no compounding)
If sheltered with reinvestment then XYZ outperforms.
If non sheltered account with no reinvestment, XYZ will lag due to taxes.
If non sheltered with reinvestment, XYZ is likely to do better in the above scenario due to compounding gains (more than offsetting the tax bite).
With XYZ, the dividends did not provide "income". Yes, the source of the dividend was from corporate growth but in your brokerage account, it was merely a return of your own investment which resulted in a lowered cost basis. Only the appreciation of share price turns the dividend into a gain or "income".
Conclusion? It's not the dividend that makes this story a success. It's the investment in a profitable growing company that happens to pay a dividend. And if you reinvest dividends in such a scenario, you achieve compounding, Buffets 8th wonder of the world. With no recovery of share price, your Total Return from dividends is ZERO.
