It’s All About the Dividends

A reader pointed out the high quality charts that are found at  One chart that is of interest is the inflation adjusted value of the Dow Jones Industrial Average from 1921-1948, 1948-1982 and 1982-present (found here).


We’re always curious about the display of charts that more accurately reflect the performance of the stock market.  After all, when discussing the merits of investing, people should know the real and nominal rates of return that are most realistic and probable for planning purposes.  What stands out about these three different periods is the magnitude of increase and decline over a given stock market cycle.

In the period from 1921 to 1948, the extent of the stock market increase, when adjusted for inflation, was approximately +469% before the long decline to the 1932 or 1942 low. In the period from 1948 to 1982, the inflation adjusted market only increased +320% and covered a period of nearly 33 years.  Finally, in the period from 1982 to January 2014, the stock market has risen nearly +731% covering a period of 31 years.

However, while the inflation-adjusted value of the Dow Jones Industrial Average reflects information that investors seldom see, it pales in comparison to what most professionals never get a glimpse of.  We’re talking about the Dow Jones Industrial Average adjusted for inflation including reinvestment of dividends along with the growth rate of dividends. Below are the same three periods with the adjustment for inflation and reinvestment of dividends plus the growth rate of the dividends.


All three periods include the adjustment for inflation and dividends (and dividend growth).  This concept of adjusting the Dow Jones Industrial Average for inflation and dividends was covered in a March 2, 2012 Wall Street Journal article titled “Dow 1,339,410: The Latest Milestone (found here)”.  At the time, the author of the  article quoted Meir Statman, a Santa Clara University professor, on his work on the topic of adjusting DJIA for inflation, dividends and taxes.  A more detailed review of this topic was outlined in the Winter 2000 Journal of Portfolio Management article by Meir Statman and Roger Clarke titled “The DJIA Crossed 652,230 in 1998 (PDF found here)”.

The conclusion about investing in stocks should be clear, dividends matter.  Unfortunately, the impact of dividends is not automatically reflected in any stock charts that we’ve had access to.  This results in a profound misunderstanding of the benefits of dividends, making it easy to ignore the impact.  All of the stocks found in our U.S. and Canadian Dividend Watch Lists (found here) attempt to draw investor attention to what matters most, dividends for the purposes of compounding.


  • Value Line Investment Survey. “A Long Term Perspective: 1920-2005”. 2006.
  • Meir Statman and Roger Clarke. "“The DJIA Crossed 652,230 in 1998”. Journal of Portfolio Management. Winter 2000.

One response to “It’s All About the Dividends

  1. NLO Subscriber

    This is great stuff!