Many investors care about price return when they compare how they are performing against others or against a selected index. For dividend investors like us, we shouldn’t care that much about price return. No, we should care about total return!

Price Return

Price Return is the difference between the current price of the stock, and the price you paid for the stock. It can either be negative, zero or positive.

Total Return

Total Return is Price Return + Dividend Return. It is the difference between the current price of the stock, and the price you paid for the stock, BUT ALSO dividend received. Often, you will see a difference in price return and total return. It might go from negative to positive, just because you consider the dividend.

Why Focus on Total Return

  • You can’t control the everyday prices of a stock. A hedge fund can short a stock, Trump can tweet about something, the sector can fall and so on. A lot of stuff can happen that changes the price of the stock, and these things happen every day. If you focus too much on these changes, you will eventually start to focus on noise. Yes, noise. Noise is the thing you read in newspapers, on forums. It’s distractive, and if you focus too much on it, it will force you to make mistakes.
  • Once you have paid the price you paid for the stock, the only thing that’s interesting from here is how the company performs from this point. No, I’m not talking about how the company´s stock is performing, but how the company, it´s divisions, it’s profit, it’s management and cash flow. If the company increases its profitability and free cash flow, you will at one point be rewarded once the market starts to price the stock accordingly.
  • Far too many investors see stocks as mere stocks. The digital age sucks in that perspective. People often think that the numbers on the screen don’t matter and don’t see anything wrong with using 5 minutes to decide if they should put $10,000 in a company they know nothing about. Compare this to how much time you spend when trying to decide on a computer or a new phone.
  • When we reach a crash, you will see all stock prices go down. This is good if you receive dividends. By focusing on total return, you will think of low price as a nice way of increasing your total return by buying when the market is low. In that way, you stop caring too much about prices. It´s the total return that concerns you, not noise.

My Portfolio

Last week I had some spare time, so I created a tiny portfolio tracker. Just to see the difference between price return and total return.

I guess it’s okay to use once, but for most of us, it’s useless, since we most likely are going to buy more stocks in our companies.

But hey, use it for inspiration. The most important thing is that you notice that even though the current price of some stocks is lower than my buying price, my total return is positive due to the dividends that I have received. See? Don´t let the price fool you.

For more articles like this, click here

Take a peek at my Dividend Income to learn more.

See you,

Stockles


9 Comments

Amber tree · April 4, 2017 at 7:53 pm

Total return in the end metric that counts for my build up strategy. That is why I buy accumulating ETFs.
Once in retirement, I do consider taking on a DGI strategy, to feel safer. The debate is still on.

    Stockles · April 5, 2017 at 1:16 pm

    Hi ATL,

    I would say that waiting for retirement before starting DGI is not smart. Since DGI is a strategy that focuses on time in the market, letting dividend grow over a longer period, it´s better to start now or don´t do it at all.

    It might be interesting for you to start a position in something like iShares Core Dividend Growth ETF (DGRO) ?

K1netic · April 8, 2017 at 7:48 am

How is the total return value calculated? Is it price return + dividends or price return + dividends reinvested? What service is that value available at? Can’t see it on google finance.

    Stockles · April 8, 2017 at 11:50 am

    Total return, when measuring performance, is the actual rate of return of an investment or a pool of investments over a given evaluation period. Total return includes interest, capital gains, dividends and distributions realized over a given period of time. Thank you for commenting.

    See more on Total return at investopedia:
    http://www.investopedia.com/terms/t/totalreturn.asp

K1netic · April 8, 2017 at 8:09 am

Hi,

What source do you use to get the total return counting from a specific date?
I could only find 1, 4, 13…260 week total returns on googlefinance.

Doug · April 8, 2017 at 7:47 pm

Stock price is irrelevant to me the only thing I care about that the company is sound and the dividend

    Stockles · April 8, 2017 at 9:22 pm

    Hi Doug,

    Glad to hear that. Sounds like you know how to play this game! Thanks for commenting.

Max Ackerman · November 13, 2018 at 3:15 am

Love your article because it explains noise. I never had a word for it but there it certainly is. Felt a little put off because of the typos. Bullet point 3 “How often doesn’t it …” and the following paragraph, “spear” instead of spare. Great website! Good luck.

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