Please Don’t Ever Forget About Your Dividends!

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One of Singapore’s leading business publications, The Business Times, had an article today titled SGX: Investors, please come get your moneythat was penned by writer Cai Hao Xiang.

Cai wrote about an amazing story where 89,000 (that’s eighty-nine thousand individuals…) people have unclaimed dividends and SingTel shares left hanging at the Singapore Exchange.

Collectively, the uncollected assets are worth an astounding S$68.3m as at mid-2013 , of which S$1.2m belongs to a single person.

When I read that, the first thing I did was to head over to SGX’s webpage to check if somehow or rather, my family and I had any unclaimed assets. Fortunately, we don’t. The next thing I did was to write what you’re currently reading.

Why do I say we’re fortunate? Well, that’s because having no unclaimed shares or dividends shows that my family and I have been putting whatever money we’ve received from investing into use (those uses might not always have had the best outcome, but at least we tried!).

SGX’s head of sales Chew Sutat was quoted by Cai as saying that “Many investors in Singapore have a short-term trading mentality. They don’t think about dividends.” Now, that’s what’s unfortunate.

You see, dividends, when reinvested into shares, have the ability to affect a tremendous positive difference in our investing results.

I’ve shared this before but I’ll do it again because the numbers are just mind-boggling. These are figures for the S&P 500 Index (a widely-followed American stock market barometer) on 8 March 2011 taken from my American colleague Morgan Housel’s work:

  • S&P 500 price: 1,319
  • S&P 500 in real terms (i.e. adjusted for inflation), based on 1871 prices: 74.35
  • S&P 500 in real terms with dividends reinvested: 38,531
  • And something special straight from him: “The power of dividends: Priceless.”

The positive impacts that dividends can bring about to long-term investors is not just an American phenomenon. Recently SGX, through its My Gateway investor-education service, published an article titled “STI & dividends beat housing prices over past 20 years.”

I’m not going to wade into the fierce housing versus stocks debate, but here’s what I picked out from SGX’s article on the power of reinvesting dividends into Singapore’s flagship stock market benchmark, the Straits Times Index (SGX: ^STI) (emphasis mine):

Remembering the stock market highs of 2007 – from the end of 2007 through to Sep [quarter] of 2013, the Straits Times Index (STI) generated an average annualised price decline of 1.6%. Combining reinvested dividends since 2007 however, the STI generated an average annualised total return of 2.0%. This represented a 3.6% reversal of fortune and exemplified the role of dividends to long term investors.”

There’s more to the power of dividends in our local stock market here in Singapore. My colleague David Kuo has also written before on the impact of dividends on long-run stock market returns. Here’s what David has to say (emphasis mine):

Consider multi-baggers Keppel Corporation (SGX: BN4) and Sembcorp Marine (SGX: S51). Their shares have jumped five-fold and six-fold respectively over the last decade [ending August 2013]. Not a bad return given that the [STI] only managed to double in the time. But if you had reinvested the dividends from the two companies, the total return would have ballooned to eight-fold and nine-fold respectively.”

Consider too, the retailer Dairy Farm Holdings (SGX: D01). In the past 10 years ended end-Sep 2013, its share price has ‘only’ gained 683%. Factor in reinvested dividends however, and those returns become an even more phenomenal 1,093%.

In Morgan’s article that I referenced earlier, he quoted John D. Rockefeller (an American tycoon born in the late 1830s who was worth an estimated US$192b in 2007’s dollars) as saying, “Do you know the one thing that gives me pleasure? It’s to see my dividends coming in.”

While most of us might never be billionaires, we can still rejoice when we see dividends checks coming in. And, those dividends can be really important. Please don’t ever forget about them!

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chong Ser Jing doesn’t own shares in any companies mentioned.