Dividends represent a tangible return on investment, which investors can choose to reinvest, spend or just keep in the bank. Unlike capital gains, which can disappear quickly, dividends cannot be taken away from you once you have received. In addition to that, dividends tend to provide the only source of total returns during sideways and bear markets. When dividends are reinvested however, investors get the power of compounding on their side.

The power of reinvested dividends could be seen if we concentrate of the recent stock market activities of the past decade. Back in 1999 and 2000 the internet and technology stocks were all the rage; it was not uncommon for a dot com entrepreneur selling anything from pet supplies to books to become a multimillionaire overnight after a successful initial public offering. Then the tech bubble burst, and millions of investors lost a ton of money. For example, the tech but not dividend heavy Nasdaq Composite is still below its all time highs set in March 2000.
The housing bubble helped the economy turn around in the early 2000’s and we had a great run up until 2007, when once again all time highs were being hit daily. After the financial bubble burst, taking down companies like Fannie Mae, Bear Stearns, Lehman Brothers and others, stock markets took a dive to levels not seen in 13 years.

At the same time, dividends paid out by the companies in the S&P 500 increased from 16.69 points in 1999 to 28.39 points in 2008. Expectations for 2009 dividends in the S&P 500 is for a drop to 21.60 points, mainly due to dividend cuts in financial related stocks.