Daniel 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 in Williamstown, Massachusetts, an M.Phil. from the University of Oxford, England, and a Ph.D. in history from the University of Illinois. As a historian, he brings a fresh and unique perspective to investing.

​

Numerous studies have demonstrated that no one can consistently predict the direction or magnitude of market prices. As Peris explains, in any given month, quarter or even a period of a few years, dividends can be completely disconnected from market prices. This is because, in the short term, buyers are influenced by many factors, including market sentiment (greed or fear) and external events that may or may not affect a company’s financial success.

​

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

 

Using Robert Schiller’s database  at Yale University, Peris found that during the interval from 1926 to 2009, the average total annual 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 the growth rate of the market price) 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 annual return can be attributed to dividend payments.

​

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

​

1. Peris, D. 2011. The Strategic Dividend Investor, Why Slow and Steady Wins the Race. McGraw-Hill, New york, NY p. ix

2. Shiller, R. Database, Yale University, http://www.econ.yale.edu/~shiller/data.htm

​