Alphamont believes dividends are an under-appreciated component of stock returns, and this is why we compare our performance to the S&P 500 Total Return, which measures S&P 500 returns with dividends re-invested, (as opposed to the S&P 500 Price Return, which excludes dividends). It is important to compare the equity portion of a portfolio's performance versus the total return index and not just the price return index, when comparing results on more than a daily time frame. We categorize all our holdings as Yield, Capital Appreciation, or Hybrid, based on the dividend yields of each holding.
The general dividend yield factor categorizations are determined as follows:
- Capital Appreciation – a stock with a dividend yield less than the S&P 500’s dividend yield, where share price appreciation is expected to make up most of the holding’s total return.
- Hybrid – a stock with a dividend yield greater than the S&P 500’s dividend yield, where share price appreciation is expected to make up a significant portion of the holding’s total return.
- Yield – a stock with the majority of the holding’s total return expected to come from its dividend yield, and not share price appreciation.
The S&P 500 Index has an approximate dividend yield of 2.0% as of January 10, 2017. As a result, our dividend yield factor categorizations fall roughly at; Capital Appreciation 0-2%, Hybrid 2-6%, and Yield 6%+.
Note: Depending upon declared dividends and share price, a stock can move from one category to another over time.
Below is a chart of the S&P 500 Price Return versus the S&P 500 Total Return from January 1, 1990 through December 30, 2016. As you can see, dividends and reinvested dividends allowed the S&P 500 Total Return to almost double performance of the S&P 500 Price return.