Recently, my 11-year-old son shared a piece of investing wisdom with me.
“Dad, investing is easy. You just buy low and sell high.”
It’s hard to argue with that logic.
In fact, “buy low and sell high” is probably one of the first investing concepts most people encounter. Whether through social media, friends, family, or the financial news, many of us grow up believing that successful investing is simply about buying an asset at one price and selling it later at a higher price.
And while there is certainly truth in that idea, it only tells part of the story.
For many people, investing is not just about what an asset might be worth in the future. It is also about what that asset can provide while you own it.
The Question Most Investors Never Ask
Consider a rental property.
Imagine you own an apartment that you rent out to tenants. There are two ways you might benefit from owning that property. First, the property’s value may increase over time. Second, it may generate rental income while you own it.
Most property investors appreciate both sources of return. In fact, if I told you about an apartment that generated no rental income and relied solely on future price appreciation, many investors would consider that a less attractive proposition. After all, you are taking on the risks and responsibilities of ownership without receiving any cash flow along the way.
Yet when it comes to investing in stocks, many people think very differently.
They focus almost exclusively on one question:
“Will the share price go up?”
Far fewer investors stop to ask:
“Will this investment generate cash for me while I own it?”
Dividend investing is built around that second question.
Just as rental income represents a share of the economic value generated by a property, dividends represent a share of the profits generated by a business. While not every company pays dividends, many established and profitable businesses choose to return part of their earnings to shareholders in the form of regular cash distributions.
This means that an investor may potentially benefit in two ways: through an increase in the value of the shares and through the dividends received while owning them.
For many investors, that combination of income and long-term growth provides a broader way of thinking about investment returns.
This does not mean dividend-paying companies are automatically better investments. Some highly successful businesses pay little or no dividend because they reinvest their profits to fuel future growth. The point is not that one approach is superior to another. Rather, it is that investors have more than one way to participate in the success of a business. Some focus primarily on capital appreciation, while others also value the cash distributions a company may generate along the way.
The Forgotten One-Third
Before dismissing dividends as a minor detail, it is worth considering how much they have contributed to investment returns historically.
According to research by S&P Dow Jones Indices, approximately 31% of the total return generated by the S&P 500 since 1926 came from dividends, while the remaining 69% came from capital appreciation. In other words, nearly one-third of investors’ long-term returns came from cash distributions paid by companies rather than increases in share prices alone.
This does not mean dividends are more important than capital growth. Both matter.
However, it does suggest that focusing exclusively on share price movements may overlook a meaningful component of long-term investment returns.
Perhaps that is why many experienced investors view dividends not as a bonus, but as one of the fundamental building blocks of total return.
A Wider Lens on Investing
My son’s advice to “buy low and sell high” is still good advice.
But perhaps it is incomplete.
Investing is not only about what an asset might be worth tomorrow. It can also be about what that asset provides while you own it.
For property investors, that may be rental income.
For stock investors, it may be dividends.
Whether or not you choose to focus on dividend-paying companies, understanding dividends provides a broader perspective on how investors can generate returns over time.
Understanding both is the first step toward seeing investing through a wider lens.
