Dividends: The Underappreciated Source of Money

Last Updated: 27. Dezember 2023By

Legendary investor Warren Buffett is often asked how he achieved such incredible returns over many decades and outperformed the American benchmark index, the S&P500, by 100% over the last 60 years. In his most recent letter to shareholders, the stock market billionaire revealed his secret recipe (“The Secret Sauce”): the power of dividends!

Why dividends are often underestimated Why are dividends so underestimated by the general investor population? The main reason: stock price gains are visible directly in the stock chart. Dividends, on the other hand, are distributed and then land as a monetary amount in the account. It is easy to lose track of where this nice stream of money is coming from.

A second reason: investors underestimate the colossal size of the dividend cake! You can quickly think here of how much money you would expect. What is the total amount of dividends paid by all publicly traded companies within one year?

Dividend total in 2023: $1.63 trillion Analysts from Janus Henderson Investors maintain a global dividend statistic and conclude that in 2023, around $1.63 trillion (!) will be distributed to shareholders. This would be an increase of 4.4% over the previous year.

Therefore, I can only encourage you: secure your piece of the dividend cake! You can generate passive income with it. That is: with the right stock selection, you can collect an additional income each month that is powered by 100% dividends.

Many investors underestimate the power of time And how this works is made clear when you consider the third reason: many investors underestimate the power of time! Good companies increase the dividend year after year for decades. In his letter to shareholders, Warren Buffett calculates that when he bought Coca Cola shares in 1994, the dividend yield was around 5%.

After that, he just had to wait and collect. Coca Cola increased the dividend every year and now he has the same stock position with a dividend yield of over 50%! Warren Buffett loves these „money printing machines“.

He commented on the Coca Cola position as follows: „Increases every year, as sure as birthdays. Charlie and I just had to cash the Coca Cola dividend checks every quarter.“ For explanation: Charlie refers to his congenial partner Charlie Munger, who passed away a few weeks ago at the age of 99.

In the past 61 years, Coca Cola has increased the dividend every year. Just this year, the US beverage giant has distributed a gross dividend of $736 million to Berkshire Hathaway, Warren Buffett’s holding company.

Outlook: On Friday, we will look here in the „Schlussgong“ at the upcoming dividend year 2024, which – as it looks – will bring more records.