A common argument against dividend investing is that dividend yields of a few percent won’t have a material effect on my portfolio. These critics claim dividend investment is not exciting enough to warrant their interest.
Well consider these facts. The long term average yield of the Australian share market is 4% pa. Look at the chart below comparing the All Ordinaries and the All Ordinaries Accumulation index. The accumulation index measures the compounded return of reinvesting dividends.
As you can see, dividends can significantly enhance your returns from the market – by reinvesting dividends over the past 30 years, the total investment return has increased almost fourfold!
Note that the accumulation index doesn’t include franking credits, so it under estimates the positive impact of dividends on the Australian investor’s portfolio.
The other thing to bear in mind is that Australian dividends tend to increase by around 7% each year on average. The only reason that yields remain so low is because share prices tend to rise at a similar rate! That’s right, dividends have on average grown at 7% per year (doubling roughly every 10 years).
If idea of investing in an asset that will on average continue to increase income payments while at the same time providing attractive capital growth appeals to you, then dividend income investing in the Australian share market is for you.
Disclaimer
The information provided on this website is for use of a general nature only and is not intended to be relied upon as, nor to be a substitute for, specific professional or investment advice. The team at Dividends.com.au are not lawyers, financial planners, investment advisers, or accountants. So, before taking any action or risking any money, you should always check with your own qualified professional advisers.