In the long run, return is your dividend yield + dividend growth + or - a valuation factor. I talk about this on the front page of my February 2014 Connolly Report. Your problem is two fold. First, you don't believe the equation in the first sentence. Most of the gains, you think, come from capital appreciation. In the long run, that's not the case. It's dividends growing on you initial yield that build wealth. Second, you do not see the results of dividend growth building on your initial yield except in the long run. So, most folks do not realize the marvel of dividend growth investing. The amounts involved as dividend growth investing starts seem trifling. Dividend increases of a few pennies a year. After a couple of decades though, it's hundreds of thousands of extra dollars. From 1986, each $1,000 invested in TSE dividend growers became $21,325. It' unbelievable. I began to realize what was involved in dividend growth investing 30 years ago. I didn't believe it at first. But now…wow!

Want to become a believer in how important dividends and dividend growth are for your returns? Click on this link and study the diagrams (especially Exhibit #2 and #5) on James Montier's first two pages. Yellow is yield. Blue is dividend growth. In Exhibit #2 there is a lot of read; it's the first year. But beside it, after five years you can begin to see what's happening…a lot more blue (dividend growth is taking effect) and the yellow, of course, it's the yield. (think Sweden). http://www.retailinvestor.org/pdf/MontierGMO.pdf

Our starting point is a list of common stocks (never preferred) with a culture of dividend growth…five years of continuous dividend increases is a minimum.

In 2002, John Bogle put it this way: “I divide stock market returns into Investment Return (enterprise), consisting of the initial and dividend yield on stocks plus their subsequent earnings growth, and Speculative Return, the impact of changing price/earnings multiple on stock prices.”