The 2018 financial reporting season has now passed and most companies on the Irish Stock Exchange have delivered results that were largely in line with expectations.
The headlines surrounding these numbers focussed almost entirely on sales and profits. Not much newspaper space or pixels were allocated to discussing arguably the most important element in a long term investor’s performance – dividends.
Dividends are the poor relation in the world of financial media and except in circumstances where they are eliminated or sharply reduced they struggle to assume central stage.
It seems far more exciting, if that word can ever be used in finance, to describe changes in revenues, cashflows and earnings per share.
Yet, in a world of record low interest rates and very low inflation dividends continue to provide a key factor in any investor journey – real returns.
A cursory review of Irish company results over the past couple of months shows dividends being announced that grew by rates of about 5% or more year on year. Compare that to inflation of low single digits and long bond yields close to zero.
The dividend growth rate has ensured the tangible annual payment from a company to its shareholders has increased faster than inflation. Indeed, over a 20 year rolling period since 1940 dividends have contributed almost 70% of total equity returns on the S+P Index.
Fortunately, during the first quarter of 2019 dividends have also been accompanied by a material capital increase in share values too. The ISEQ is up 24% between January and March, giving investors an encouraging start to the year after a rough ride in the final quarter of 2018.
That six month swing in fortunes was another salutory reminder to those who may be allured by the daily headlines of the financial TV stations.
These media businesses thrive in exaggerated headlines proclaiming record share price changes by the hour, day, week and month. It would have been easy to respond to these last November by dumping your equities for fear of a major collapse.
The ISEQ fell by 20% between September and December. Those who did missed a very strong rally since late Christmas.
The ISEQ is up almost a quarter from that low. Those who ignore the short term headlines avoided the stress of minute by minute share price watching while also skipping the fees and costs attached to excessive share trading.
The tortoise and the hare come to mind when trying to detail how good and bad investing works. Patient commitment to a set of high quality companies, acquired at reasonable prices that produce capital gains over time along with regular and growing dividends can produce a treasure trove of value.
I was reminded recently of the lows in equity markets that occurred with the global financial crash in 2008.
In 2009 the share price of a simple but well managed Irish company – Total Produce – hit 20c amid poor market sentiment. Its dividend yield at the time was close to 10%. In the intervening decade that company’s share price has risen to a high of 215c.
At the same time it paid out every six months a dividend that has consistently been stable or growing. Total Produce has delivered returns for those investors that backed it which have far exceeded inflation or competing assets over the same period.
All that has taken place without much fanfare or headlines and it reminds us that the fast money game celebrated by financial TV media is far removed from the diligent and painstaking work needed to achieve real wealth over a sustained period.
By studying individual companies closely it is possible to assemble a diversified portfolio that keeps on delivering through thick and thin. Just ask the shareholders in many Irish companies that receive their dividend cheques over the coming weeks.