When Dividends Make All the Difference

If you own shares in some of the ASX’s most popular dividend payers, it must be tempting to lament their lack of share price growth. Some have been stuck in a rut for decades.

Take National Australia Bank [ASX:NAB]. Its share price is no higher today than it was in 1999. And the other banks haven’t fared much better.

Both ANZ Bank Ltd. [ASX:ANZ] and Westpac Banking Corp. [ASX:WBC] are trading about where they were in 2007. While Commonwealth Bank [ASX:CBA] is higher than its pre GFC high, its share price has gone sideways for the last five years.

Despite their languishing share prices, investors still seem to stay wedded to these income favourites. Perhaps it’s simply because they have owned them so long that they just don’t know what else to buy.

Or, if they did go ahead and sell them, the taxman might not be far away.

The other reason, and perhaps the biggest, is the income they pay. Since 1999, although National Australia Bank’s share price has gone nowhere, it has paid out almost $33 in dividends. Meaning that over that time, it has paid out well in excess of its current share price.

In other words, if you include dividends, you have more than doubled your money on NAB over this time.

If you look at Westpac, it has paid out almost $19 in dividends since 2007. Although a much shorter timeframe than our NAB example, it still represents around two-thirds of its current price. With ANZ, the ratio is much the same.

When you add their dividends back on to these stocks, you can see that their performance is much more attractive than the share price tells you. Depending on how long you have held them, over time the dividends can cover the purchase price of the stock. Like with our NAB example. 

Sometimes, though, the dividend just can’t make up for a poorly performing share price. Investors are only too familiar with the recent fall in AMP Limited [ASX:AMP] off the back of revelations in the Royal Commission.

AMP’s share price is down almost 30% over the last two months. But if you go all the way back to its initial listing in 1998, the story gets worse. AMP is now trading at less than a quarter of where it was two decades ago.

Another perennial income favourite that has suffered a similar fate is Telstra Corporation Ltd [ASX:TLS]. It is now trading at less than a third of its 1999 high. Although paying out billions of dollars in dividends to its shareholders, its share price continues to slide.

Is it worth holding onto these shares?

As both these stocks show, despite the dividends, investors still need to decide whether they want to own the underlying shares. The stock market still prices them on their expectations of the future, not just what they have done in the past.

If they decide they do want to keep them, the income these stocks generate can really make the difference in a sideways or choppy market.

In a bull market, high growth stocks can trade on huge multiples of their earnings. The market prices them on expectations of the future — not their current performance — and bids them higher.

But when the market swings the other way, these can be the first stocks the market abandons. Because they often pay little or no dividends, investors have little reason to hold them should their growth story evaporate.

That’s where income investing comes into play. Shareholders continue to reap the benefit of the dividends these companies pay, even if their share price is struggling for growth.

The other thing, of course, is there are hundreds of stocks that pay dividends. Not just the usual names with which we are all familiar. These are the kind of stocks we chase down at Total Income.

It doesn’t mean that you need to sell your existing dividend paying shares if you’re happy to keep them. But what it does show is that there might be many more income paying stocks on the market than you might be aware of.

These are the type of stocks that can continue to pay you an income, even when there is little share price growth on offer in the market. And it’s this that can help boost your overall returns.

All the best,

Matt Hibbard,
Editor, Total Income


While many investors chase quick fire gains, Matt takes a different view. He is focused on two very clear goals. First: How to generate reliable and consistent income in a low-interest rate world. And second, how you can invest today to build wealth over the next 10–15 years. Matt researches income investments. You can find more of Matt’s work over at Total Income, where he is hunting down the next generation of dividend-paying companies for the future. He is also the editor of Options Trader, where he uses basic options strategies to generate additional streams of income beyond the regular dividend payments. Having worked for himself and with global firms for almost three decades, Matt has traded nearly every asset in existence. But now he is on a very different mission — to help investors generate income irrespective of what the market is doing. It’s about getting companies to pay you a steady, stable income, with minimal stress and the least risk possible. Matt doesn’t believe you have the luxury of being a bull or a bear in the market right now. You have to earn an income from it, regardless of whether stocks are going up or down. By getting the financial markets to pay you an income, you can get to focus on more important things than just money.


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