Starting with 2009, the S&P 500 has delivered annualized results of approximately 23%. Very few active fund managers can say they have bested that result. What is more important to you and me, however, is what the next five years will look like.
In the U.S., we see interest rates at basically zero, and even when the Federal Reserve starts to hike rates, they will still be historically low for some time.
As for Europe, Germany recently issued bonds yielding a negative 0.22%. Other European countries have had similar bond issuances, but found no shortage of buyers. Think about that for a moment: People are locking up money today with the full understanding that they will be given less money in the future. Clearly, there is a viewpoint that future alternative returns from stocks are no longer that appealing given the risk.
While I believe it's very unlikely that we will see a repeat of 23% a year over the next five years, high-quality dividend-paying equities should offer individual investors an opportunity to have more money at the end of the day than what they put in. In fact, since most of us don't have hundreds of millions of dollars to put to work, we are not forced to look to negative yields to allocate capital. Perhaps the little guy has the advantage now.
With share prices in oil companies having dropped, this offers the chance to capture solid dividends and perhaps recognize above-average market returns over the next several years. ConocoPhillips (COP) yields 4.6%, Chevron (CVX) 4%, and BP (BP) nearly 6%. Total returns from these companies can exceed 10% over the next several years.
General Electric (GE) currently yields 3.7% and last week's news that it was disposing of its finance business to focus more on industrial markets ought to bode well for shareholders. Some $90 billion will be used toward share buybacks and a dividend payment.
I think most investors would gladly accept a return of 10% per annum over the next five years. Blue-chip dividends provide a very rational, risk-averse mechanism to doing just that. Just remember two conditions: dividends provide the most value to patient long-term investors; and one must always seeks to purchase the underlying security at an attractive entry point.