Corporations with common stocks first appeared in the early seventeenth century when monarchs approved them for trade, exploration and colonization purposes. Stocks were first used by speculators but over time, they became accepted as investments. Speculation returned again and stocks fell out of favor by many people.

The East India Company paid dividends of from 95% to 234%. John Perkins Cushing,  a Boston capitalist, had a portfolio of stocks from 1836 to 185 that paid 6.6% from banking stocks, 8.1% from manufacturing stocks, 12.1% from insurance stocks and 8.5% from railroad and canal stocks. As other ventures also paid dividends, investors began to expect dividends.

A diversified portfolio of big dividend paying stocks led by reputable people began to gain acceptance beside bonds and real estate as sources of income. In 1830 when Harvard College sued a trustee, Mr. Amory, the “prudent man theory” was established affirming that a diversified and carefully selected portfolio of common stock could be a wise investment.

Stocks became an investment class but most investors preferred bonds even though stocks paid a higher yield most of the next 100 years. Stocks were perceived to have more risk than bonds or real estate.

In 1912, Irving Fisher, considered one of America’s greatest economists, said common stocks offered some protection against inflation but dividend yields remained high.

In the mid 1960s, a study on portfolios of insurance companies found that over three decades, the weighted average cash dividend yield of common stocks was 5.79% compared with 3.17% cash returns on bonds.

75% of historical returns on common stocks came from cash dividends..

Adding capital gains and dividends together, common stocks showed a return of 7.56%, compared with 3.27% for bonds.


Until the 1970s stock yields averaged between 10% and 20% higher than yields on investment grade bonds. By 2000, dividend yields were 80% below bond yields. Dividends were forgotten by most people and capital gains became the preference. By ignoring dividends, most people are leaving around 40% on their total return on the table.

As dividends increase, the stock price often increases creating capital gains opportunities. Both income and capital gains make up total return. People who ignore income are hurting themselves.  

A good total return investment program for many people is one based on income and capital gains similar to the balanced funds that were started in the 1930s.

Good Mutual funds frequently have an annual return of 6% to 10% after ten years regardless their growth or conservative objectives or volatility.

6% to 10% annual return should be an investor’s objective, not trying to beat the market indexes,

John Burr Williams proved the importance of dividends in a portfolio.

A total return portfolio built on dividend growing stocks yielding 120% or more than the 10 year treasury rate could be a good way to build the income stream and wealth needed for future expenses.

Growing income should generate growing capital gains with far less work and stress than what the risk averse world would have you believe.

As for Modern Portfolio Theory

Human emotions, greed and fear, and abusing the rules of compounding with debt should eventually override any academic or math formula justifications for the modern Portfolio theory and will bring dividends and income back into the markets. Income will become more important than risk aversion.