Many believe the 21st century has been a disappointing time for stock markets, but there are a trillion reasons why they are wrong.
Stock markets sceptics like to point out that the FTSE 100 was higher on 31 December 1999 than it is today. It ended the last Millennium at 6,930, while at time of writing it stands at just 6,361, leaving it roughly 8% lower after 16 long years. Unfortunately, they are missing the point of investing.
These disappointing numbers do NOT mean that investors are down 8% after 16 years. For a start, only a handful will have invested at the very top of the market, most will have put money in at far lower levels. Some will even have invested when the index was as low as 3,519, the level it hit in March 2009 at the height of the financial crisis. They will be up 80% since then in capital growth alone.
Even those who bought a FTSE 100 tracker just before the bell rang on the last day of 20th-century trading will still have made a surprisingly healthy profit on their investment, thanks to the magic of dividends. Dividends are the regular payment companies make as a reward for holding their stock, and if you had re-invested all your dividends back into a tracker bought in December 1999, you would be sitting on a 70% profit today.
Capital growth across the FTSE 100 may have disappointed this century but dividends have more than compensated for that. The latest Dividend Monitor from Capita Asset Services gives us this incredible figure -- £1 trillion (tn) has now been paid out to UK shareholders so far this century, with plenty more to come.
That's right, a cool £1tn has been divvied up among ordinary investors, helping to make some of them seriously rich.
They can be heroes
Three-quarters of the money you will ever make from investing in stocks and shares will come from dividend payouts, provided, that is, you re-invest them for growth. By ploughing dividends back into your shareholdings you even benefit when stock markets fall, as you will pick up more shares or units at the lower rate.
2016 looks set to be another great year for dividends. Payouts rose 6.4% to £14.2bn in the first three months despite a number of high-profile names cutting their payouts, notably in the mining sector. The damage has been largely offset by dividends heroes such as Royal Dutch Shell, the UK's largest dividend payer, which is set to pay out a mighty £10.4bn this year, following the acquisition of BG Group.
Capita warns that dividend growth will slow this year but predicts that UK equities will nevertheless yield 3.6% over the next 12 months. With the Bank of England holding base rates at 0.5% for more than seven years and still no increase in sight, this is income heaven for hard-pressed savers.
So give a trillion thanks for dividends, because they continue to give ordinary people like you the opportunity to build serious wealth.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has recommended Royal Dutch Shell. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.