What Is the Greater Contributor to Total Returns

When considering the potential return they will realise from the investment, investors commonly focus on the potential appreciation of the share price (capital growth) and often ignore the contribution of dividends earned (dividend growth), thus overlooking a potentially significant contributor to returns. The objectives of this study was to determine which, between dividend and capital growth, had been the greater contributor to total returns of South African equities over a 10-year period beginning 31 July 1996, ending 31 July 2006; by using the Top 40 index of shares listed on the Johannesburg Securities Exchange over that period. The study also aimed to determine whether dividend policy should be considered as carefully as the share's potential capital appreciation when constructing portfolios. The study concluded that for shares included in the sample, dividend growth contributed more than 50% of the total return for only 10% of them. In total dividend growth contributed more than 25% of the total return for 33% of the shares.