Edge Fund Investors High Five

Is the ASX at all time highs?

I often see commentary in the media that the Australian Stock Market has not bested its 2007 highs.  This traditional chart of the ASX going back to 1992 certainly reflects just that…

This does not take into account the total return received by Australian Stock Market participants who have simply bought and held. The total return received by share market investors includes the dividends (income) paid to investors which when added to the capital return (chart above) demonstrates the Total Return.

ASX 200 Accumulation (Total Return) Index
I could not find any suitable charts but have the data going back to 1992 on the ASX200 Accumulation Index (ie the Total Return Index) so decided to created my own chart below.

What it clearly shows is that with dividends added to the capital return of the Australian share market, the Total Return of the Australian Share Market is in fact at all time highs!!!

Compare the Pair
Compare the ASX 200 Accumulation Index to the S&P 500 shown below, and check the correlation.

Compounding Dividends Add Up
The Australian share market has a very generous dividend payout ratio in comparison to many other countries with the average ASX200 companies paying out dividends at a rate of about 4.5% per annum.

Compound 4.5% per year over 25 years (since this 1992 chart) and add that to the capital gains of the stock market and it is easy to see how the ASX200 Accumulation Index is at all time highs.

Plus this does not account for the tax deduction shareholders receive from franking credits which adds an additional benefit not reflected above.

The US by Contrast
The US have a dividend payout of about 1% per annum so most of the gains in their market is from the capital appreciation of the stocks listed on their market.

US listed companies typically retain and reinvest their earnings back into their businesses to compound the capital growth.

This is in contrast to the approach taken by most Australian listed companies who are more inclined to pay out a much higher percentage of the company’s profits to shareholders as dividends.

The Total Return is Reality
To me, the Total Return from a share market investing perspective is far more important to track. Plus, it is what I measure my Shares and SMSF results against.

These charts confirm to me that in Australia it is important to buy dividend paying shares for long term gains.

In the absence of a better chart, I will maintain this one going forward and ignore the negative rhetoric suggesting the ASX is not at the 2007 highs.

In real terms ie money in investor’s pockets, the Aussie market has far surpassed 2007.

The information provided in this article is intended for general use only. The article is intended to provide educational information only. Please be aware that investing involves the risk of capital loss. The information presented does not take into account the investment objectives, financial situation and advisory needs of any particular person nor does the information provided constitute investment advice. Under no circumstances should investments be based solely on the information herein.

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