Archived article

Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.

Income can have a powerful effect on long-run returns
Thursday 15 Feb 2018 Author: Steven Frazer

What links global consumer products group Proctor & Gamble and Coca-Cola, the drinks giant? Yes, their respective brands are pretty much ubiquitous around the world, but the pair have also been paying increased dividends for more than 50 years.

In the US, where both are listed on the New York stock market, they are known as ‘dividend kings’.

This is important because of the power compounding has on overall returns, if that income is reinvested back into the stock.

Data shows that between 1962 and 2012 Coca-Cola’s stock returns were more than four times better if dividends were used to buy more shares in the company. Or in other words, $10,000 invested in Coca-Cola in 1962 was worth around $2.25m by 2012, versus about $550,000 if dividends were not reinvested.

The UK has its own dividend kings, with investment trusts
City of London (CLIG), Bankers (BNKR) and Alliance Trust (ATST) among UK-quoted vehicles to raise dividends annually for at least 50 years.

Companies such as Diageo (DGE), Young & Co’s Brewery (YNGA:AIM) and industrial controls group Spectris (SXS) have all raised their annual payout for more than 25 years running, according to the Dividends Champion website. (SF)

‹ Previous2018-02-15Next ›