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Chart that shows how the power of dividends is rising

Dividend yield is a good indicator of value in a share (such as Imperial Tobacco, pictured above and explained here) or stock markets.

For investors, it is crucial to understand the power of these payments in terms of the contribution to total returns.

The chart shows how crucial income has been in recent decades, more than doubling returns for investors. If you had invested £10,000 in the UK stock market as Britpop was taking off in 1995, it would now be worth £25,200, without considering charges. If you had chosen to re-invest the dividends, your money would now be worth £48,890.

The relevance of dividends to total returns has grown sharply in importance in recent years as companies have chosen to increase their payments to shareholders, partly due to favourable currency swings for some of the companies with big overseas earnings.

It underlines the importance of choosing the right fund – accumulation (acc) fund rather than income (inc) if you can afford to tie up the income. And your broker should be able to reinvest dividends from shares, just check the charge.

Today, the FTSE 100 yields 3.4pc but it has been as low as 2pc and as high as 5.5pc since 1999 and only last autumn went as high as 4pc as the index sank. It closed last night at a fresh high of 6962 points.

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Chart that shows how the power of dividends is rising Reviewed by on . Dividend yield is a good indicator of value in a share (such as Imperial Tobacco, pictured above and explained here) or stock markets. For investors, it is cruc Dividend yield is a good indicator of value in a share (such as Imperial Tobacco, pictured above and explained here) or stock markets. For investors, it is cruc Rating:
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