What is Real Total Return?
In the last 6 months (May to November 2021) the Dow has gone from 34,756 points to 33,290, then up to 35,625 and then dropping to 33,843. What does this all mean? Stock markets are cyclical and it's impossible to accurately predict which way the stock market will go.
Markets are cyclical
This fluctuation is normal, many believe that the market is still high, and further declines are coming. I’m not going to make any predictions, in fact no one can accurately predict where stock prices will go. Regardless of market conditions the key here is to focus on your long-term Real Total Return:
Real Total Return = Capital Appreciation + Dividend Income + Dividend Growth
Real Total Return is capital appreciation, dividend income and dividend growth. The only securities that allow for Real Total Return are common dividend paying stocks.
Dividend growth provides you with higher returns. Your Dividend Yield on Cost goes up every time the dividend goes up. Suppose you purchased PG in 2000 for $23.38, the dividend at the time was $0.64. With annual increases here would be your yield on cost over time:
|Year||Stock Purchase Price||Dividend||Yield on Cost|
|2000||$23.38||$0.640||$0.640 / $23.38 = 2.74%|
|2005||$23.38||$1.030||$1.030 / $23.38 = 4.41%|
|2010||$23.38||$1.802||$1.802 / $23.38 = 7.71%|
|2015||$23.38||$2.594||$2.594 / $23.38 = 11.10%|
|2021||$23.38||$3.480||$3.480 / $23.38 = 14.88%|
There you have it, double digit returns from just holding on to a quality stock and collecting the rising dividends. This my friends, is our investing mantra.
I can help you to start investing today, why re-invent the wheel when you can learn from my 20-years of being in the stock market. I've witnessed first hand the ups and downs of the market, and I know what it's like to start investing your hard earned money. I created the 12 Rule of Simply Investing to help you get started right away, so you don't have to wait on the sidelines any longer. The sooner you start investing the sooner you will be on your path to financial freedom.