Any student of stock market history knows dividend income has accounted for a significant portion of the total return generated by equities over the past three-quarters of a century. According to the just-published Risk Premia Over Time Report from Ibbotson Associates, dividends accounted for 4.3% of the 10.4% annualized return for large-cap stocks from 1926 through 2003. For midcap stocks, dividends accounted for 4.1% out of 11.3%; for small-cap stocks, it was 3.8% out of 11.7%; and for microcap stocks, 2.6% out of 12.7%. Subtract inflation and the importance of dividends comes into sharper relief. Dividends have accounted for well over half of the long-term real return on big-company stocks.
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