Many academic researchers have argued that dividends can be crucial, accounting for 40% of all the total returns delivered by markets. But Peris takes a more extreme position, arguing that dividends account for about 90% of returns. To make the case, he cites data from economist Robert Shiller.

According to the Shiller data, stocks returned 9.8% annually from 1926 through 2010. Of the total returns, 4.2 percentage points came from dividends and 5.6 percentage points were due to share appreciation.

Seeing the numbers, some researchers argue that share appreciation is more important than dividends, and investors should focus on investing to obtain capital gains. But Peris says that dividends grew at an annual rate of 4.4%. He says that the dividend growth is the main factor contributing to share appreciation.

"If a company raises its distribution of profits, then the value of the business goes up," he says.

Because dividends are so important, investors should focus on obtaining them, Peris says. Companies that pay rich dividends tend to be disciplined businesses that deliver strong total returns.
Stan Luxenberg is a freelance writer specializing in mutual funds and investing. He was executive editor of Individual Investor magazine.

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