subject: Joseph Wang Financial - The Indices Do Not Reflect Dividends Paid By Companies [print this page] The stock index (IBEX 35, Stock Exchange General Index of Madrid, S & P 500, Dow Jones, Eurostoxx 50, Xetra DAX, CAC 40, etc.) Do not include dividends paid by companies. This means that when, based on a particular index, a means of public communication that the stock is up X% in a given period in that calculation is not including dividends paid by companies that comprise the index during that period. If such dividend included the revaluation would be much higher.
You can include these dividends in the calculation of the indices. The called up "total indices" are the "brothers" of the normal rates that do take into account the dividends. In the Spanish stock exchange is the case of IGBM and his "brother", the ITGBM:
IGBM: General Index of Madrid Stock Exchange. The index is published every media daily.
ITGBM: Total General Index of Madrid Stock Exchange. It is the IGBM but considering that distribute dividends the companies comprising the index. Do not publish any media daily. It's pretty hard to find his quote because it advertises very little, but is available on the website of stock exchanges and markets .
Both indices base 100 definitely took 31.12.1985 (until this year both indices taking base 100 at the beginning of each year).
As you can see the ITGBM up much more than the IGBM, which is quite logical because both indices are made exactly the same companies. The difference is that you include dividends and the other not. The difference will continue to expand in the future, regardless of the revaluation of the stock market. Only if all companies in the Spanish stock dividend distributed stop both indexes have the same appreciation from that time. While there is only one company that distributed dividend will always have an appreciation ITGBM than IGBM.
Most important are the conclusions to be drawn from this fact:
The stock market is more profitable than it sounds, since most studies and articles in the media, books, etc.. using the indices are known, ie which do not include the dividend. If those same studies were made with the results overall rates would be much more favorable to the Exchange. Besides being more favorable, the important thing is that would be more real because the shareholders of the companies actually paid dividends. If they were more favorable but would not have less real value.
Mutual funds are less profitable than they appear. There have been many studies comparing the profitability of investment funds with returns of stock indices. In all cases the conclusion is that the vast majority of mutual funds have a lower return than the long-term rates. Only a minority (much less than 1% of available funds) manages to beat the indexes over a relatively long period of time. In addition the vast majority of these studies are done with indices that do not include dividends, so the comparison with the total rates (which are best reflected the reality of direct investment in the stock market) is even more unfavorable to investment funds.
To include the dividends in the total index is considered that each time a company distributes dividend received is used to buy more shares of that company the same day you receive the dividend.
by: Joseph Wang
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