In his recent Berkshire Hathaway shareholder letter, Warren Buffett shares the incredible power of dividends. He highlights the success stories of Coca-Cola and American Express as prime examples. Berkshire’s investment in Coke in 1994 yielded a $75 million dividend, while last year, they received a whopping $704 million! Similarly, American Express dividends grew from $41 million in 1995 to $302 million in recent years. These stocks represent about 5% of Berkshire’s net worth today, emphasizing their continued value.
Dividends are not to be underestimated in terms of total return. Over the past few decades, the S&P 500 experienced a remarkable 777% increase, but when accounting for dividends, that growth surges to over 1,400%. In fact, dividends accounted for more than 20% of the S&P 500’s total return during that time.
It’s important to note that not all dividends are created equal. Intel recently made a significant cut of 66% to its dividend. This serves as a reminder that investors should carefully select companies that not only offer dividends but also have the potential to sustain and increase them over time. One way to identify such companies is by evaluating their economic moats, including factors like switching costs, network effects, intangible assets, efficient scale, and cost advantages.
Understanding the historical significance of dividends, it becomes evident that they play a vital role in generating returns. For investors looking to make the most of their investment portfolios, considering the expertise of fund experts and educating themselves on the topic of dividends and economic moats can prove invaluable.
Disclaimer: The information provided here is for educational purposes only and should not be construed as financial advice. Consult with fund experts or a financial professional to make informed investment decisions.