Danial Peris, CFA, is a Senior Vice President and Senior Portfolio Manager at Federated Investors in Pittsburgh, PA. He holds a B.A. from Williams College, a M.Phil. from St. Antony's College, Oxford and a Ph.D in History, from the University of Illinois. As a historian, he brings a fresh and unique perspective to investing.

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A number of studies have demonstated that no-one can consistently predict the direction or magnitude of market prices over time intervals less than about 3 years. As Peris explains, in any given month, quarter or even periods of a few years, dividends can be completely disconnected from share price movements. This is because, in the short-term, buyers are influenced by market sentiment (greed or fear), unexpected external events that have no effect on a particular company's financial situation and numerous other factors.

 

Peris' book summarizes the results of analyses undertaken by several market researchers, that found that those companies that had been financially stable and had also paid growing dividends for more than about 10 years, provided total returns (dividends plus capital gains) that exceeded the S&P 500 Total Return Index over time intervals of 5  to 10 years.

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Using Robert Schiller's data set, Peris found that during the interval from 1926 to 2009, the average total return of those companies that survived, was 9.7%, of which the base dividend yield represented 4.2% and the dividend growth rate (which over long time intervals is equal to growth rate of share prices) was 4.4%, for a total of 8.6% per year, or almost 90% of the total return of 9.7% per year. That is, almost 90% of the stock market's historical total return can be attributed to dividend payments.  

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And this then, is the secret to successful investing. Buy financially stable (blue-chip) companies that have a history of paying their shareholders a signficant and growing dividend. It's that simple.​​​​​​