Devoted to understanding the basics and fundamentals of investing

Today I have a very special post for readers. Jeremy from TheDividendGuyBlog agreed to put together a post regarding the power of dividends in a tough market like the one we are currently in. Jeremy runs a great blog that I personally read quite often. He takes in-depth looks at just how much dividends do for an investment portfolio, and the results are truly astounding. I encourage you to to check out his blog and subscribe to the feed as well.

The Impact of Dividends in a Choppy Market

One look at this chart below and it is easy to see that since September of '07 the market has been in a steady decline. When markets act like this, it can be difficult for an investor to remain unemotional; to not sell into the fear and desperation portrayed by modern media.

With the right dividend stocks, an investor can make market declines easier to bear as they are rewarded with dividend payments which can be reinvested.  These dividends are put back to work in the market at lower prices which over time can significantly add to an investor's return.  Consider the following graphic, which highlights the impact reinvested dividends have on cumulative returns.  The U.S. total return (dividends + capital gains) is almost double that of the capital gain's alone:

Click to EnlargeThe impact that reinvested dividends have is astounding.  As a dividend investor, I enjoy these down markets as I know each of my dividend stocks will continue to throw off income that I can reinvest at lower prices.  Using history as a guide, when I look forward 25 years from now and I am looking at retirement these market drops will theoretically have helped my overall returns.  In essence, I have dollar cost averaged into more shares.