For the last 15 years the FTSE 100 index has looked like a loser, because it has failed to trump its all-time high of 6930.
It hit that number on 31 December 1999, when markets soared on a heady brew of millennial optimism, only to suffer the mother of all hangovers.
The FTSE 100 has repeatedly threatened to top that over the last year, but every time it gets near it suffers a nasty bout of stage fright.
Greek Tragedy
It surged close again last week, only to retreat again yesterday morning following the collapse of Greek debt talks.
At time of writing it’s down 33 points, or 0.50%. Frankly, I expected worse, because I can’t see any simple solution to the Greek impasse.
But the surprising truth is that investors are looking at the wrong number. In one key respect, the FTSE 100 burst through its all-time high years ago.
Did You Miss This, Too?
Last Friday, the FTSE 100 total return index hit a record high of 5204, with zero fanfare.
This index includes the dividends paid by FTSE 100 stocks, and is now a whopping 66% above its December 1999 level, according to Hargreaves Lansdown.
As Laith Khalaf at Hargreaves Lansdown has pointed out, it has regularly broken record highs, with the previous high achieved only two weeks ago.
This shows just how important dividends are to stock market returns, yet amazingly, the headline writers and nearly every single investor ignores it.
Double Your Money
The importance of dividends mustn’t be underestimated, and the FTSE 100 total return index shows the huge difference they make when re-invested for growth.
Even if you take a 3% dividend yield and reinvest it each year, you end up doubling your money in 23 years.
Right now, the FTSE 100 is producing an average yield of 3.5%, so you should double your money even sooner than that.
That calculation doesn’t even take into account the fact that most companies try to grow their dividends each year, which should accelerate your growth.
Capital growth, which everybody obsesses over, comes on top of that.
Fruity Fun
Some say the dividends are the icing on the cake, but I say they are the juiciest, fruitiest part of all.
So the FTSE 100 isn’t the 15-year loser you thought it was. Measured on a total return basis, which is more relevant to long-term growth investors anyway, it has been a winner for years.
