Most people know the U.S. stock market is a great way to build wealth over time.

Adjusted for inflation, it’s delivered about 7% annual returns.

But dividends play an important role in boosting those long-term stock returns – above and beyond share price appreciation.

According to research from the IESE Business School, from 1900 to 2018, the S&P 500 delivered 416x price returns, or 14x after inflation.

Whereas taking dividend payments and reinvesting them into the originating companies that paid them? That resulted in 49,990x returns, or 1,656x after inflation.

We don’t know about you, but we find those to be very compelling numbers.

None of us were alive to invest in stocks back in 1900, of course. But the same power potential exists today.

Moreover, it even exists in the face of inflation. That financial thief becomes far less of an issue with dividends – which have historically grown 1.6%-3.5% faster.

That’s reason No. 1 why dividends are so great: They supercharge stock returns. And here’s reason No. 2… They greatly reduce risk.

According to JPMorgan Asset Management, from 1980 to 2020, 44% of all U.S. stocks suffered 70% declines – or worse – and never recovered.

Let’s use British American Tobacco (BTI) as an example of how dividends can protect you from that statistic.

It’s a “boring” blue-chip company that’s been around for over 100 years. And it pays a steadily growing dividend.

We ran it through our back-testing system, which measures data back to 1986. So we’ll use that as our starting point in imagining you’d bought $1,000 worth of its stock.

If you’d chosen not to reinvest your dividend payouts, that inflation-adjusted investment was worth $7,248 as of April 2023 – better than the S&P 500’s $6,669 result.

But with dividend reinvestment? You’d be sitting on $42,332!

That’s the power of long-term dividend growth investing.

We know the notion that dividends are for retirees and pension funds. And we fully understand the allure of intense immediate gains – something dividend stocks rarely do.

But the best time to start looking seriously at safe, dividend-paying stocks is now.

By shifting your view away from the topsy-turvy world we’ve been plunged into and focusing on fundamentals, you can set yourself up for incredible returns over time.

Palm Beach Research Group