Total Return: Price Change Plus Dividends
Your result from owning a share is the price change plus any dividends received. Total return puts both parts into a single number.
Why this matters for beginners
Comparing a dividend payer with a company that reinvests everything is impossible if you only look at price charts. Total return is the fair comparison.
Main explanation
Total return combines two sources: the change in the share price and the cash dividends received during the period. Both are part of your outcome.
A share that ends the year unchanged in price but paid four percent in dividends produced a four percent total return before tax and costs.
Price-only charts understate the result of steady dividend payers and can make them look permanently flat compared with companies that reinvest.
Total return says nothing about how the result was produced. A high return driven by one lucky year is not the same as a steady result, so read it alongside the business itself.
Example using a real company
A share bought at 100 ends the year at 103 and paid 2 in dividends. The total return is 5 percent before tax and costs.
- →Price 100 to 110 with no dividend: total return 10 percent.
- →Price 100 to 100 with 5 paid in dividends: total return 5 percent.
Common beginner mistakes
- ✕Judging a dividend payer on its price chart alone.
- ✕Ignoring costs and tax when comparing returns.
- ✕Treating one strong year of total return as a permanent rate.
Key terms
- Total return
- Price change plus dividends received over a period.
- Price return
- The change in share price only.
- Reinvestment
- Using received dividends to buy more shares.
Key takeaways
- 01Total return is the honest measure of your outcome.
- 02Price charts alone understate dividend payers.
- 03Costs and tax reduce the return you actually keep.
Check yourself
- 01Total return includes dividends as well as price change.
- 02A flat share price always means a zero return for the year.
- 03Costs and tax reduce the return an investor actually keeps.
Try the concept on a real company
Compare a steady dividend payer with a reinvesting company in the Analyzer and describe where each one's return is expected to come from.
Educational examples only. Not buy or sell recommendations.