ONE ECONOMY TO RULE THEM ALL:

According to Robert Shiller, from September 1929 to June 1932 the stock market fell 81% on a real basis, but real dividends only fell 11%. Isn't that astonishing? During the worst economic disaster our country has ever seen, companies only cut dividends a little over 10%. During the 1970s bear market in 1973 and 1974 the stock market fell 54% on a real basis, but real dividends fell just 6%.

I checked how dividends held up in the financial crisis from 2007-09, as well. From the peak in October 2007 to the bottom in March 2009, dividends on the S&P 500 actually rose slightly (although they fell roughly 19% about six months after the stock market bottomed). In the bear market from 2000-02, dividends dropped by just 2% even though the market got cut in half.

Next I looked the historical dividend data from Shiller over the past seventy years to see what the historical growth rates looked like [...]

This shows how often the rolling twelve month growth rates over one, three and five years for dividends on the S&P 500 were positive. Rarely do dividends fall and when they do it's not nearly as much as the stock market. Over all one year periods since 1945 the worst drop in dividends was a -19% fall. Over three year periods the worst drop was -18%. And dividends have never fallen over a five year period in that time.

Since 1945, total dividends paid are up sixty-six fold.

The average growth rates for one, three and five years were 5.8%, 19.8% and 33.9%, respectively. By investing in stocks you not only get fairly stable cash flows, but you also get an income stream that tends to grow faster than the rate of inflation. This is a highly under-appreciated aspect of investing in the stock market.

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