![]() ![]() Some interesting trends can be seen in both:Īs we observe in the graph, in recent years the stock market delivers more of its profits through capital gains. The following graph shows inflation per year, together with annual dividend distribution rates. To evaluate properly how much can be earned through stock investments in a long period of time, the effect of inflation has to be extracted from the picture, by adjusting the intermediate results according to an index such as the Consumer Price Index published by the U.S. Phrases like "one dollar invested in 1926 would be $3000 today" are often heard regardless of the fact that a 1926 dollar has little relation with a 2009 dollar. Inflation and Dividend-Distribution Trends Note that the y-axis is logarithmically scaled, for better appreciation of the earlier trends. As can be seen, reinvesting all dividends produced about 8 times the return. The orange curve shows the result of having all dividends reinvested (i.e., the total return), while the blue curve disregards dividends, therefore reflecting only the evolution of price. The effect of investing $1 in 1950 is seen. The following graph shows the S&P 500 historical return since 1950: Therefore, it is of interest to graph and average the total return (meaning the increase in value if all dividends were reinvested) instead of the evolution of price. If we are to analyze the historical profitability of stock investments, this portion cannot be neglected. ![]() Total ReturnĪccording to Standard & Poor's, the dividend component was responsible for 44 % of the total return of the last 80 years of the index. Nevertheless, to study the real profitability of the market, we need to average and graph not only the price, but the effect of dividend distributions and inflation as well. ![]() Those numbers, and their corresponding graphs, are useful for evaluating the past performance of stock investments, because the S&P500 index is well regarded as a proxy for the large-cap stock market. LOGRITHMIC CHART STOCKSPY SERIESYahoo can even graph the series since 1950. Historical prices for the Standard & Poor's 500 stock-market index can be obtained from websites like Yahoo Finance, using the ^GSPC ticker, or Google Finance, with. Inflation and Dividend-Distribution Trends | ![]()
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