As a technician, I like buying things that trend up and to the right. Even better if they trend consistently up and to the right. Better still if the trend’s volatility is muted to make it easy to stay the course. Perhaps no trend better exhibits these characteristics than S&P 500 dividends.

They Just Keep Going Up

To wit:

In 1960 the S&P 500 paid a cash dividend of $1.98. Last year it was $68.34. That’s an increase of about 35 times or a compound annual growth rate of around 5.8% over the past 62 years.

The source for the S&P 500 dividend data is this informative table from Dr. Aswath Damodaran of NYU’s Stern School of Business. He updates the data each year and it’s wonderful.

Dividends ballooning over the decades in uptrending fashion? Check!

The other data point worth noting is just how consistent the rise has been. In the 62 years of the data set, dividends have only gone down in the following 7 years: 1970, 1971, 1986, 2000, 2002, 2009, and 2020.

That said, the magnitude of the declines was usually small and dividends rebounded aggressively following each episode.

Dividends rising extremely consistently year after year? Check!

I was reminded of this while reading all the hot takes on Warren Buffet’s annual letter which dropped over the weekend. You can read it here.

Take this one, for instance:

It makes you wonder if Coke and American Express are simply unicorns or if that phenomenon could be duplicated by buying a diversified basket of quality companies and letting it ride for three decades. To find out, I looked at what would have happened if you bought the S&P 500 in 1994. Did the income stream grow even close to what it did in Coke and American Express? Before divulging the answer, let’s look at how Buffet explained his investment:

“In August 1994 – yes, 1994 – Berkshire completed its seven-year purchase of the 400
million shares of Coca-Cola we now own. The total cost was $1.3 billion – then a very meaningful
sum at Berkshire.

The cash dividend we received from Coke in 1994 was $75 million. By 2022, the dividend
had increased to $704 million. Growth occurred every year, just as certain as birthdays. All Charlie
and I were required to do was cash Coke’s quarterly dividend checks. We expect that those checks
are highly likely to grow.”

The numbers are mind-boggling. Let’s anchor on the dividends

Year: 1994 Dividends: $75 million

Year: 2022 Dividends: $704 million

Over nearly 30 years, the dividends grew by a little over 9-fold. Even more impressively, Berkshire Hathaway now gets paid about 50% of its original investment every single year.

Now, let’s look at how the S&P 500 compares using the above data source on dividends:

Year: 1994 Price: $459.27 Dividends: $13.17

Year: 2022 Price $3,839.50 Dividends: $68.34

So, did the S&P 500 mirror the trajectory of Buffett’s booming investment in Coke? Yes, but to a lesser degree. The dividend didn’t go up 9-fold, but it did go up 5-fold. Today, a single year’s dividend in the S&P 500 makes up about 15% of your original 1994 investment. Not bad, not bad at all.

Buffett has said no one wants to get rich slowly. He’s also described the stock market as a mechanism that moves money from the impatient to the patient. His success in Coke and American Express, as well as how the strategy of owning stocks for the long run and riding the dividend trend to the moon has worked in the broader market is a perfect illustration of both points.

There were two other passages from his letter that I enjoyed:

“One advantage of our publicly-traded segment is that – episodically – it becomes easy to
buy pieces of wonderful businesses at wonderful prices. It’s crucial to understand that stocks often
trade at truly foolish prices, both high and low. “Efficient” markets exist only in textbooks. In
truth, marketable stocks and bonds are baffling, their behavior usually understandable only in
retrospect.”

“I have been investing for 80 years – more than one-third of our country’s lifetime. Despite
our citizens’ penchant – almost enthusiasm – for self-criticism and self-doubt, I have yet to see a
time when it made sense to make a long-term bet against America. And I doubt very much that
any reader of this letter will have a different experience in the future.”

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